Co-op Bank eases financial burden to clients through salary advances to a tune of Sh105bn during Covid-19 pandemic

Co-operative Bank of Kenya has eased the burden to clients’ financial burden occasioned by the Covid-19 pandemic and consequently economic slump through salary advances.

Details show that the lender, through its mobile platform, M-Co-op cash has so far issued Sh105.1 billion as salary advances in the review period, up from Sh52.28 billion in the preceding similar period.

In particular, salary advances to customers doubled last year on the back of Covid-19 economic hardships that saw many workers suffer pay cuts.

“(E-credit) is consumer-based, that is on salary check off deductions at source and therefore low non-performing loan,” says the lender.

Co-op Bank data shows that the increased requests for salary advances saw the cumulative short-term loans issued via mobile phones jump by 92 per cent to Sh122.23 billion at the end of December.

The lender said that 86 per cent of the cumulative e-credit or Sh105.113 billion relates to salary advances—called e-flexi— while the remainder was taken up by businesses.

The rise means that salaried people were drawing an average of Sh144.7 million advances daily from the lender, showing the popularity of short-term credit facility in the Covid-19 environment.

The number of customers taking the e-credit, mostly for short- term goals such as buying food and paying rent, also jumped 1.6 times to 4.64 million.

Salary advances are usually attractive because they do not come with conditions such as guarantors or security. Banks mostly require one to maintain a salary account.

The increased uptake of salary advances came on the back of steep coronavirus-induced job losses and salary cuts that disrupted financial plans of salaried people.

This triggered a jump in workers seeking short-term credit through digital applications to plug gaps in their expenditure.

Co-op bank charges a processing fees of eight per cent on the amount of salary advance applied for, with repayment period being between one and three months.

Kenyan lenders have been turning to technology in response to competition from mobile phone-based financial services such as Safaricom’s M-Pesa platform.

This include Absa’s Timiza, KCB Group’s KCB M-Pesa and NCBA Group’s M-Shwari, the latter two operated in partnership with Safaricom.

Kenyan lenders have been turning to technology in response to competition from mobile phone-based financial services such as Safaricom’s M-Pesa platform.

This include Absa’s Timiza, KCB Group’s KCB M-Pesa and NCBA Group’s M-Shwari, the latter two operated in partnership with Safaricom.

In addition, the customer pays 20 per cent excise duty of the processing fee and an insurance fees of 0.034 per cent of the loan value.

This means that a customer applying for Sh100,000 salary advance is given Sh90,366 after paying Sh8,000 processing fee, Sh1,600 excise duty and Sh34 as insurance fees.