Digital lenders should self-regulate before Big Brother moves in

Thanks to the strategic alignment to the global technological revolution, Kenya has one of the most effective digital lending access rates especially to micro, small and medium enterprises as well as households at the bottom of economic pyramid. This digital lending movement has forced commercial banks to join the frenzy with commercial banks like KCB, Equity Bank and Cooperative, among others, joining Safaricom which has M-Shwari.

According to Financial Deepening Sector (FSD, Kenya), the market has grown fast: M-Shwari has disbursed Ksh230 billion loans since inception in 2012, while KCB, the largest lender by asset size in Kenya, now provides 90%  of its loans through its KCB M-Pesa platform.

Equity Bank, the leading institution in terms of depositors had disbursed Ksh57 billion via the Equitel platform by March last year. Overall, the country now has at least 49 digital lending apps lending between Ksh50 and Ksh50,000.

But there is a lacuna in the sense that despite unprecedented growth in platforms, digital credit is not reaching everyone. It remains ill-suited for most of the population whose livelihoods are characterized by irregular cash-flows, such as farmers and casual workers. Reaching these segments will require a deeper understanding of their financial lives, the key risks that they face, and the day-to-day liquidity needs.

As digital lending grows, unethical players will try to steal the show to accumulate profits. Pyramid schemes posing as genuine mobile app lenders are on the rise, with some asking unsuspecting borrowers to pay registration fees and deposits before vanishing into thin air. They have neither registered physical address nor customer care help lines. They are heavily advertised on social media promising quick loans, unbelievable returns and packages.

In July last year, financial services regulators – Central Bank of Kenya, Capital Market Authority, Insurance Regulatory Authority, Retirement Benefits Authority and Sacco Societies Regulatory Authority (SASRA) – expressed concern over the increasing number of unlicensed and unregulated financial products. Some of these products include online pyramid schemes, credit and saving schemes as well as mobile loan apps.

Unlike those operated by commercial banks, microfinance institutions and cooperative and credit societies, the digital informal lenders operate under their own rules. There is also a growing concern about lack of a credit pricing model in the sector, exposing consumers to exploitation. While some digital apps are lending at reasonable interest rates, others entice clients with flashy offers laced with hidden charges that push interest rates to the extreme.

In August last year, the Central Bank cautioned that despite Kenya boasting advancement in developing financial technology solutions, lack of adequate guidelines has opened room for rogue players. In May the same year, and for the first time, the National Treasury published a draft Bill on financial regulation which covers digital lenders. A key objective is to ensure that providers treat retail customers fairly.

But above this, there is also need for digital lending apps to go beyond business and show a sense of responsibility. Various studies show that access to credit alone is not enough. First-time customers need support from providers to understand the terms of these loans, as well as their benefits and consequences.

No wonder the World Bank has described mobile money as a success field but equally a regulatory minefield. It warns that digital credit, if not properly regulated, can easily exacerbate poverty levels and lead borrowers into debt traps.

[ Also Read: Digital credit moves from experiment to economic mainstay

It is, therefore, upon the sector to come up with ways to analyze borrowing habits not only for profit maximizing purpose but also to avert indebtedness. The FSD report in fact echoes the need for responsible practices in digital lending space, calling on players or an oversight to develop better tools to track over-indebtedness and multiple borrowing.

It is imperative for the sector to develop effective self-regulatory policies to protect clients and safeguard its credibility. Self-regulation will help avert government forced interventions and effects of the Banking Act, 2016 that did not only affect operations in the banking sector but crippled lending to the private sector. This negatively affected economic growth in the country.

Transparent and responsible digital lending practices will see Kenya lead the world in spearheading the Universal Financial Access 2020 initiative and leverage on it to realize Sustainable Development Goals.

[ See Also: Class Eight dropout becomes a millionaire ]

Latest

Form 4 Leaver Who Makes Sh140,000 Monthly From Chapatis

Jepkoech, who started off with one packet of wheat flour a day, says she does a bundle per day, making Ksh4500 per day from chapatis alone. In addition, she sells tea and chips, which tops up her sales to Ksh5,500 per day, translating to about Ksh140,000 per month.

Perfectionism: Are You a Perfectionist?

Perfectionism can be defined as the propensity to think and believe that anything short of perfect is an abject failure while having concerns over mistakes and subjecting oneself to harsh and critical self-evaluations when the output fails to produce sought-after satisfaction and excellence. Am I a perfectionist?

Smart Doors: How You Can Control Access to Your House on Mobile

Many operators of Airbnb in Nairobi and other cities are using this technology to manage their clients access to accommodation and lodging facilities using smart doors and smart switches.

Fatal Accidents Report Reveals Most Dangerous Roads in Mombasa

The report, which spotlights roads with highest accident rates at the coast, offers chilling trends, including, among others, statistics that show significantly more men die in road accidents.

Follow Us

Newsletter

Don't miss

Lupita’s Little Brother Junior Nyong’o Charting His Own Path in Acting

Junior Nyongó, who is also a musician and a DJ and now a graduate of UC San Diego with an MFA in Acting, is crafting his own solid path in the world of acting with roles in major theatre productions.

Safaricom To Power Tusker OktobaFest Beer Festival

Safaricom’s involvement in OktobaFest as a technology and payments partner will focus on fostering seamless in-festival connectivity, empowering the youth and Gen Z community through Safaricom Hook, and powering digital payments through M-PESA.

Music Producers Launch Organization To Streamline Recording Industry

Recording Industry of Kenya (RIKE) was launched on 9th October 2023. Registered in 2022 as a not-for-profit organization, RIKE aims to promote the collective interests of producers of sound recordings in the country.

Nairobi’s Hero Bar Listed Among World’s 50 Best Bars

World Best Bars: Hero Bar in Nairobi continues to climb the list, moving up six places to No.62 and Johannesburg’s Sin + Tax comes in at No.94. Dubai new entry Ergo is at No.69 and Melbourne’s Byrdi has re-entered the list at No.61.

Kenyan DJs Face Off In Smirnoff Battle Of The Beats Season 3

The Smirnoff Battle of the Beats Season 3, a DJ competition, is poised to unleash an unprecedented musical frenzy countrywide.

The Highs And Lows Of Betty Kyallo, Sisters Show As Season 2 Ends

Kyallo Kulture has always been, above all, about sisterhood, and in Season 2 we have witnessed the charm of it - the ups that gave us wholesome moments as the sisters led by Betty Kyallo spent time together.

DStv Beats CNN, BBC To Become Most Admired Media Outlet In Africa

DStv, MultiChoice Group’s leading broadcast service, has been named...

MultiChoice Revises Subscription Fees For DStv, GOtv

MultiChoice has announced price adjustments on some of their...

Octopizzo: How I Make My Money

"I've been doing this for 12, 13 years. It reaches a point where you no longer need to prove that you can make a hit record," he stated.

New Spotify EQUAL Artist Qing Madi Talks Music and Dreams

Heavily influenced by her cultural background and the lyrical arrangements of Kendrick Lamar, the versatile Nigerian prodigy is shaping the future of music with her unique genre-bending fusion of Afrobeats, Pop, Soul and R&B.
PHYLLIS KAMAU
PHYLLIS KAMAUhttp://www.businesstoday.co.ke
Ms Kamau is a Digital Lending Analyst.

Form 4 Leaver Who Makes Sh140,000 Monthly From Chapatis

Jepkoech, who started off with one packet of wheat flour a day, says she does a bundle per day, making Ksh4500 per day from chapatis alone. In addition, she sells tea and chips, which tops up her sales to Ksh5,500 per day, translating to about Ksh140,000 per month.

Perfectionism: Are You a Perfectionist?

Perfectionism can be defined as the propensity to think and believe that anything short of perfect is an abject failure while having concerns over mistakes and subjecting oneself to harsh and critical self-evaluations when the output fails to produce sought-after satisfaction and excellence. Am I a perfectionist?

Smart Doors: How You Can Control Access to Your House on Mobile

Many operators of Airbnb in Nairobi and other cities are using this technology to manage their clients access to accommodation and lodging facilities using smart doors and smart switches.

9 COMMENTS

LEAVE A REPLY

Please enter your comment!
Please enter your name here