Workers tapped more than Sh44.12 billion salary advances from Co-operative Bank in nine months ending September this year.
The huge appetite for overdrafts 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 per cent from Sh34.4 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 Sh173.5 billion at the end of September from Sh105.7 billion in September 2020.
The salary advance product, which Co-op Bank calls e-flexi, means salaried workers were tapping Sh5.7 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 on the back of economic difficulties brought about by the Covid-19 pandemic.
Salary advances made up 86 per cent of the Sh105.7 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 per cent on the amount of salary advance. In addition, customers pay 20 per cent excise duty of the processing fee and an insurance fee of 0.034 per cent of the loan value.
This means that a customer applying for a Sh100,000 salary advance incurs Sh8,000 processing fee, Sh1,600 excise duty and Sh34 insurance fees, and receives Sh90,366.
Customers are allowed to borrow from Sh3,000 and processing is done instantly. The amount is recovered within one to three months.
Banks such as Co-op, Absa, KCB, and NCBA have been turning to technology in response to competition from phone-based financial services such as Zenka, Oye, Sotiwa, Okolea, Branch and Tala.
Safaricom’s overdraft facility Fuliza, which is underwritten by KCB and NCBA, has also been popular with lending growing 62 per cent to Sh242.6 billion in six months to September.
M-Shwari lending fell by Sh4.1 billion to Sh43.4 billion while KCB M-Pesa dropped by Sh4.4 billion to Sh22.9 billion.
Co-op Bank’s nine-month net profit grew by 18.9 per cent to Sh11.6 billion, on increased interest and non-interest income.
Total interest income rose 21.5 per cent to Sh39.5 billion as the lender expanded its loan book and investment in government debt paper.
Loan book increased 7.7 per cent to Sh306.3 billion while investment in government paper rose by 55.5 per cent to Sh193.3 billion.