A borrower receives a micro loan from Tala, a dominant digital lender in Kenya. Loan sharking tendencies by some mobile lenders are becoming a deterrent to people who would be interested in taking credit. www.businesstoday.co.ke
A borrower receives a micro loan from Tala, a dominant digital lender in Kenya. Loan sharking tendencies by some mobile lenders are becoming a deterrent to people who would be interested in taking credit. [Photo/Tala]

Despite banks continually facing stiff competition from mobile money providers and Saccos, mobile money debtors are feeling the pinch on tactics employed to make them service their loans.

Data from the Integrated Customer Experience company Ajua, however, shows that Kenyans are more informed and are actively exploring other options that suit their budgets particularly mobile money lenders.

Mobile money usage has grown from 27.9% to 79.4% in the last decade compared to a growth of 26% in traditional banks usage over the last 13 years according to the 2019 FinAcess Household Survey co-written by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics (KNBS) and the Financial Sector Deepening Kenya (FSD).

Ajua reports that 27.3% of Kenyan consumers who did not have bank accounts cited low income and working in the informal sector as the main reasons for not having bank accounts.

“Some preferred using M-Pesa because it allows them to save relatively less money compared to banks which close an account once it remains dormant for a while,” notes the report.

The respondents also mentioned that they were discouraged by the relatively high transaction charges.

Speaking on why they preferred mobile banking to traditional banking, some said that that they ceased operating a bank account once they lost their job.

CRB Threats

This makes joblessness one of the reasons why Kenyans are not operating bank accounts.

On the downside, the loan sharking tendencies by the mobile lenders are becoming a deterrent to people who would be interested in taking credit.

The report points out that despite the growing demand for these services, customers increasingly reported experiencing hostile treatment when being asked to repay their loans.

“In a bid to recover debts, some lenders resort to accessing information from their customer’s contact list prompting their contacts to push the loanee to clear their debt without their customer’s consent, an act which many customers feel is a breach of privacy.”

Also see: How a SIM-card Registration Threatens Your Privacy

When Ajua asked Kenyans what they considered most important when choosing a mobile money lender most customers considered interest rates, repayment duration, the period of the loan disbursement and dignified treatment of customers.

Speaking on their criteria, one customer replied, “Reasonable rates, they do not call or text everyone on your contact list to tell you to pay the loan if defaulted for some time…”

In the long run, these methods of debt recovery ranging from intrusive calls to aggressively texting loanees multiple times in a day are both ineffective and unsustainable for lenders as such tactics often lead to a high churn rate and loss of revenue in the process.

Ajua recommends that to prevent this from happening, mobile money lenders need to improve their customer experience, stay competitive in the market and be compliant with the Data act of 2019.

“One way would be to leverage the existing gaps and ensuring transparency by simplifying and communicating terms and conditions better, charging reasonable interest rates and ensuring fair and respectful treatment of customers.”

Read: What It Will Cost to Close Your Bank Account

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