It costs 50% in annual interest to buy EVs on credit

From the newsletter

Few African consumers can afford to purchase an electric vehicle with cash. Most need a loan from a specialist consumer finance provider. We surveyed the three biggest such lenders in Kenya. The average annual interest charge in the electric motorcycle markets is around 50%. However, in some cases, it’s significantly higher.  

• Downpayments are generally around 10% of the cash purchase price. This makes the motorbikes very accessible for low-income riders. The most common downpayment is KES 25,000 ($192).

• Given the hand-to-mouth nature of most riders’ earnings, payments are calculated and made on a daily basis. A common daily payment is $4.

More details

• The three lenders (Mogo, Watu and M-Kopa) offer almost identical products. The most popular models are Roam Air, Ampersand Turaco 2 and Spiro Commando.

• Mogo appears to be the most transparent of the lenders. It publishes prices online, while others require consumers to make a call to get a quote.

• Loan periods vary. M-Kopa, Mogo, and Watu all have 12 months as the shortest repayment period. M-Kopa has options of up to 24 months, which reduces daily payments but increases the aggregate interest payment.  

• All lenders use a PAYG model (pay as you go), meaning they install tech in the bikes that enable remote disabling if payments flag.  

• For a full table of lenders, products, prices and interest rates, please see below.

Our take

• There has been public criticism in Kenya of the cost of EV consumer finance. Several reasons may explain why interest rates are so high. Local bank loans are already expensive (around 15%) and most motorbike buyers don’t qualify as they don’t have a sufficient credit history. Hence their only option is to go to a specialist lender, which puts them in a powerful position, mitigated by competition in the young and so far barely regulated market.

• In a competitive lending market, pricing is driven by risk: How likely are consumers to repay? Given the low downpayment, riders have little equity invested early in the loan period, which may increase default risk. On the other hand, the mobile tracking and disabling technology should mitigate that.  

• The ability for PAYG borrowers to stretch loan periods may, however, add costs for the lender that few think about. A borrower can stop repayment for a few days or weeks, perhaps when low on cash, and have their bike disabled temporarily, only to start – and drive – again later. In aggregate, this delay in repayment costs the lender extra. 

• We expect rates to fall over time as more bike makers offer their own financing solutions. They can afford lower rates as their profit is mostly made on the bikes. Financial middlemen such as the ones we surveyed will eventually have extra competition, which in turn is likely to drive down prices. 

• In the meantime, some riders already have access to lower prices. Corporate partners such as Bolt, the mobility platform, get their drivers lower prices in a deal with M-Kopa. Bolt drivers reliably earn well, hence lowering the risk.  

Amounts in Kenyan shilling (KES):