Employees in Kenya borrowed more than Ksh.44.12 billion salary advances from Co-operative Bank in nine months ended September 30, 2021.
The huge appetite for quick loans highlights the growing popularity of short-term borrowings.
The lender disclosed that the advance borrowings, mostly to meet short-term needs such as buying food and paying bus fare, grew 28 percent from Ksh.34.4 billion in a similar period last year.
Delivered via the bank’s mobile platform, M-Co-op Cash, the borrowing pushed its total digital lending to Ksh.173.5 billion at the end of September from Ksh.105.7 billion in September 2020.
The salary advance product, which Co-op Bank calls e-flexi, means salaried workers were tapping Ksh.5.7 billion monthly in the period, as 1.42 million customers were added to reach 6.06 million.
The jump in workers seeking short-term credit through digital applications has partly been attributed to economic difficulties brought about by the COVID-19 pandemic.
Salary advances made up 86 percent of the Ksh.105.7 billion e-credit, with businesses taking up the remainder.
“(E-credit) is consumer-based, that is on salary check-off deductions at source and therefore lower credit risk,” says Co-op Bank.
Co-op Bank charges a processing fee of eight percent on the amount of salary advance. In addition, customers pay 20 percent excise duty of the processing fee and an insurance fee of 0.034 percent of the loan value.
This means that a customer applying for a Ksh.100,000 salary advance incurs Ksh.8,000 processing fee, Ksh.1,600 excise duty and Ksh.34 insurance fees, and receives Ksh.90,366.
The amount is disbursed immediately after the loan application and is recovered within one to three months.