By Steve Umidha
For the past few years, Kenya’s fintech ecosystem has remained the apple of borrowers’ eyes, pouring millions of shillings in short-term loans and making it the hottest and probably the most insane investment activity in recent history of the country’s financial sector.
This burgeoning space – initially envisioned to advance access to loans to the unbanked, is now staring at a momentous threat from rogue digital lenders who lure unsuspecting and susceptible consumers to their traps.
Often, these unregulated micro lenders who charge inflated interest rates go an extra mile in their debt collection practices with public shaming, endless harassment to force a borrower into paying back, just some of the uncouth techniques in use.
As a result, Kenya’s top financial regulator, the Central Bank of Kenya (CBK), disturbed loan defaulters and honest mobile loan lenders are not amused, with the latter now concerned that increasing number of dodgy dealers could potentially lock them out of business as well as erode the industry’s status.
“It is a concern especially to some of the companies running legitimate businesses because this could hurt the industry’s reputation in the long run,” says Tala Country Manager, Ivan Mbowa, who believes that additional scrutiny of the industry being mooted by CBK would help restore the sector’s image. Tala is one of the country’s primary digital lenders.
Nearly a month ago, the Central Bank of Kenya’s Deputy Governor Sheila M’Mbijjewe announced that the institution together with the Treasury were preparing a law that is expected to cover digital mobile lenders in an effort aimed at restraining their exorbitant monthly interest rates – which rise up to 520 per cent when annualized, leading to mounting number of defaulters now listed with credit reference bureaus (CRBs).
This is after reports by CBK that a middle-aged man took his life following aggravation and public shaming by undisclosed digital lending application.
“I think it is a welcome move, because activities of some of the digital lenders warrant scrutiny by relevant regulatory bodies, of cause we have legit ones, and like with any industry you cannot miss a few cheeky characters out to make a killing from their dubious undertakings,” says Peter Macharia, an independent financial expert, who further warns that inaction to the mushrooming concerns could expose many industry players and borrowers alike.
As the digital lending industry expanded, experts have continuously pointed out that customers were usually confused about loan terms and conditions, hindering fintech firms’ potential to advance financial inclusion. This attracted the attention of Central Bank of Kenya governor Patrick Njoroge, who criticized such platforms, saying in May of last year that they were “displaying shylock-like behavior while hiding behind nice-looking applications.”