Effects of Digital Lending Practices on Uptake of Loans: a Case of M-Shwari of NCBA Bank Kenya PLC in Meru County

Abstract

In the last decade, Kenya has witnessed a remarkable growth in digital lending products and platforms. However, the effect of these digital lending products on uptake of loans remains under researched. The purpose of the study was to determine the effects of M- Shwari digital lending practices on uptake of loans from NCBA Bank Kenya PLC in Meru County with a view to recommend on how the bank can leverage and/or capitalize on M-Shwari to grow its loan book. Specifically, the study sought to establish the effects of M-Shwari’s loan amounts accessible, M-Shwari’s loan repayment period, M- Shwari’s loan pricing and M Shwari’s default consequences on uptake of bank loans among selected NCBA Bank Kenya PLC customers in Meru County. The theories that guided this study are the financial intermediation theory and the information asymmetry theory. The study adopted a descriptive survey research design. The target population was 38, 000 NCBA Bank Kenya PLC Meru Branch customers who utilize the banks M-Shwari digital credit. A simple random sampling procedure was used to choose the 380 respondents who made up the sample size. The study's data were gathered via a self-administered questionnaire. Statistics, both descriptive and inferential, were used to examine quantitative data. Conceptual content analysis was used to thematically evaluate qualitative data. The study discovered that M-loan Shwari's amounts and payback terms have a favorable and significant impact on clients of NCBA Bank Kenya PLC in Meru County taking out bank loans. The study also found that M Shwari’s loan pricing, and M-Shwari’s default consequences have a negative and significant effect on uptake of bank loans among NCBA Bank Kenya PLC customers in Meru County. The study concluded that most customers loan limits was not changing despite regular borrowing in NCBA. The study also concluded that increase in loan amounts accessible was helpful to customers. The study further concluded that M-Shwari’s loan repayment period has a positive and significant effect on uptake of bank loans among NCBA Bank Kenya PLC customers in Meru County. The study concluded that the grace period of Mshwari loan repayment was insufficient to the customers since it was too small. The study therefore recommends that NCBA Bank Kenya PLC should provide enough loans to their customers especially the loyal customers. NCBA Bank Kenya PLC management should increase the loan limits of their customers who borrow regularly. The customers on the other hand should also work to grow their loan limits. In addition, NCBA Bank Kenya PLC management should look at the grace period for customers to repay loans and make it longer so that customers are able to pay.