Excise Duty on Loans: Kenyans who take mobile loans will now pay more for their loans following the introduction of a new tax on loans. The new tax took effect on July 1 and mobile lenders have been sending messages to borrowers alerting them about the higher charges.
“Dear customer, following the enactment of the Finance Act 2021 by the Government of Kenya, we wish to inform you that beginning July 1st, 2021 the fees on your M-Shwari loan will be subjected to Excise Duty at 20 per cent deducted at loan disbursement,” a message from the NCBA which runs the M-Shwari platform said. M-Shwari, which charges a facilitation fee of 7.5 per cent will see its fees rise by 1.5 per cent to 9 per cent. KCB M-Pesa loans will increase from 7.35 per cent to 8.64 per cent. Fuliza will also not be spared. Neither will Absa Kenya’s Timiza loans.
“Dear customer, following the enactment of the Finance Act 2021, please note that beginning July 1st, 2021 all loan related fees and commissions will be subject to 20 per cent excise duty,” a notification from Family Bank to its customers said.
A report that appeared in a local daily quoted a bank leader saying that the cost of mobile loans will now be higher than normal bank loans. This is because mobile loans are dominated by facilitation fees. “Before the new tax, borrowers paid a facility fee of 7.5 percent for the M-Shwari loans, amounting to an annualized interest rate of 90 percent. On Fuliza, the fee is 1.083 percent daily or 395.2 percent annualized, underlining the high cost of using the short-term credit services regularly,” the report said.
Other prominent lenders such as Equity Bank are expected to follow suit. It also remains to be seen how the new tax will affect Standard Chartered Bank’s move to venture into mobile lending. Mobile loans given by unregulated lenders could be costlier as lenders inflate on fees to reap maximum profits.