Who in Kenya does not borrow a loan from mobile apps? i wonder
Kenya built a reputation as a pioneer of financial inclusion through its early adoption of a mobile money system that enables people to transfer cash and make payments on cellphones without a bank account. Now, a proliferation of lenders are using the same technology to extend credit to the banked and unbanked alike, saddling borrowers with high interest rates and leaving regulators scrambling to keep up.
Over 45 digital lending facilities are active in Kenya today with the apps thriving on convenience and perceived low interest, attracting thousands of applicants daily.
Irresistible as they are, the risk borrowers are finding themselves in and the growing calls for regulations by conventional lenders.
With just a National ID and a cellphone line, one is guaranteed instant loans of between Ksh.50 and Ksh.1 million with a repayment period of up to six months.
The growth in paperless lending is being attributed to an increasing appetite for small soft loans and a significant jump in the number of financial technology firms or fintechs, who deem Kenya a safe haven for their ventures.
Digital lending has no doubt enhanced Kenya’s financial inclusion according to industry experts.
Even small borrowers who ordinarily find that they do not have a hearing in the formal environment, are getting access.
The trend also brings with it convenience, in that one is able to access credit irrespective of their location and even time of borrowing.
Accessing small and short term loans has never been this easy but there is also a downside to it.
The not so stringent terms of these loans continue to attract many borrowers most of whom are students or jobless.
So attractive they are, that most borrow across platforms as and when they please. The trend often prove rewarding until such a time when servicing the loans becomes difficult.
“At one point I remember at the end of the month 3 applications were asking for about 66,000. And this is money that you have already paid. And you have to look,” said James Wachira, a borrower.
Wachira is not the only one hurting from reckless borrowing.
“You see this is money that you have already spent. So you have to look for money to repay so that you can stay afloat. So borrowing repaying borrowing again, I kept sinking deeper and it’s like an addiction,” added Wachira.
The sad bit is that many of these defaulters are risking their future borrowing chances.
According to the Credit Information Sharing Association of Kenya, at least 11 million accounts sit in the credit bureaus for both positive and negative data.
About 1 million Kenyans are so far on the wrong side of this data base, many of them for delayed loan repayments, while most of them for defaulting.
If you think delayed repayment and defaulting on mobile loans apps are the only reason to have your credit worthiness tainted, you are wrong. Messing up with you education and utility loans has a similar effect.
This trend is now threatening to disrupt conventional lending especially in the wake of interest rates capping has now got commercial banks worried.
” It should be everybody’s concern that we are crippling micro businesses by pushing them to these mobile lenders and fintechs. If there was anyone who need protection is not me and you we can protect ourselves it’s in the bottom of the pyramid who have very limited choices,” said Dr. James Mwangi- Equity MD.
Equity Bank boss just like many other commercial bank heads want these fintechs regulated saying they charge exorbitant interest rates on their easy to access loans.
“So if you are applying regulation apply it uniformly. What this regulation did was skew the market and at worse throw Kenyans under the bus,” added Mwangi.
“There’s a great need for that we need to protect the consumer on interest rates. Other aspects that need regulation is how data is used and how competition is managed in the digital space,” Said Jack Ngare, Md Finserve.
If we don’t regulate digital lenders we are going to run into a crisis in the credit market, some of them will fail and business will fail from an economic point of view.
From a social perspective, stress levels going up if consumers turn to decision that are harmful.
But even as the debate on whether or not these digital loans solutions should be regulated, borrowers like Wachira have learnt their lessons.