Mobile lending firms on the spot over predatory business models

[dropcap]I[/dropcap]n March, Central Bank Governor Dr Patrick Njoroge compared mobile lending firms to ‘shylocks’ over what he described as their predatory instinct citing the high interest rates at which they dish out loans to Kenyans, months down the line, the lending firms are being accused of intimidation and breaching their customers’ privacy.

Back in April, billionaire Peter Nduati sued a mobile lending firm after the Credit Reference Bureau (CRB) wrongfully blacklisted him moments after the mobile lending firm had erroneously submitted his details to the agency claiming that he had defaulted on a Ksh1,000 loan.

The effect of the error on Nduati’s business deals was immense, his credit rating was downgraded which in turn had a direct impact on his business operations.

Nduati, who is the CEO of Centric Air, an air ambulance company and the founder of the Resolution Insurance Company, had never borrowed from the lending firm in question so how did the lender acquire Nduati’s mobile details?

Mobile lending firms use algorithms, which they rely on to assess the ability of the borrower to pay back the loan. The contact that the borrower makes with the firm enables the lender to access their mobile numbers.

Some of the popular lenders in the country include Mshwari, KCB Mpesa,Tala, Branch, Saida, Timiza, Shika Loan and Okash.

In order to determine if one qualifies for a certain limit, digital lending firms ask for borrowers’ permission to use their data including SMS history and other information in order to generate credit scores and determine worthiness.

The latest accusation being leveled against the digital lending apps is that some rogue ones go to the extent of calling contacts saved on a borrower’s phonebook and ask them to compel the borrower to pay up the loans.

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Earlier this week, Peter Chirchir, a social media user, took to Facebook to express his disgruntlement with one of the digital lending firms that had applied overzealous methods in trying to get him to pay a Ksh 5,590 loan that he had defaulted.

“I applied for a loan with the digital lending firm which I have been unable to pay due to financial difficulties. The firm has now resorted to calling everyone in my phonebook including my girlfriend in an attempt to get me to pay back the loan,” Chirchir posted on Facebook.

The firm in question also made contact with Chirchir’s referee warning that the loan was attracting penalties and if he (Chirchir) failed to pay back the loan, the referee was also warned that Chirchir would be handed over to debt collectors and his details would be submitted to CRB for blacklisting.

According to Chirchir, the amount that he is supposed to payback after the accrued penalties amount to Ksh7,710 up from Ksh5,590 which he describes as inconsistent to the terms and conditions for acquiring the loan.

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Dr Njoroge had also expressed concerns with the lack of regulation in the digital lending space.

“There has to be a law in place to regulate these apps but how or who regulates them is anyone’s guess,” Njoroge said during a press briefing at the CBK.

In an interview with Business Today, Tala East Africa Director Rose Muturi welcomed regulation of the sector but said that the mobile lenders were exercising self regulation and had formed an association to address any grievances raised by the public.