Shylocks have gone hi-tech in Kenya. Mobile phone money lenders have grown like mushrooms in Kenya. Numerous mobile lenders have continued to thrive in the local market, offering loans at exorbitant interest rates and ruthlessly going after individuals who default by engaging their family members with data mined through the applications.
The lack of adequate guidelines has opened up room for rogue players making it hard for consumers to differentiate them from ethical lending platforms. The law capping interest rates that have been in place has made more and more Kenyans desperate. It has been nearly impossible for individuals to access credit from traditional banks, thus pushing them to go for digital loan platforms. These digital lenders are now taking advantage of cash-strapped people who lack adequate information on lending rates offered by the platforms.
High-interest rates charged by mobile lending apps
Mobile lending apps, some linked to banks, are now charging between 70 and 180 percent interest per year. Many customers don’t notice because the interest is charged monthly or daily. Sadly, these quick loans have become a regular fixture for the majority of households in the country who rely on credit as a source of livelihood. These loans, though highly-priced are tempting to hapless borrowers.
Kenya is a haven for digital lenders. There are at least 49 mobile credit providers in the country, with one being launched each year. The Kenyan economy has witnessed a sudden upsurge in the number of mobile money lending firms operating in the country.
There are numerous claims that most of these lenders operate as shylocks. This made the CBK Governor Njoroge talk tough regarding these firms. He reiterated that it was high time the CBK put these lending firms under its radar.
Mobile money lenders starving Kenyans
Most Kenyans are now financially starved as some of these mobile money lenders charge their customers on the so-called transaction fee, interest, or penalties. There is even a certain mobile app lender who charges 2 percent of the principal amount on a daily basis in case the borrower fails to pay by the due date. So no matter how the borrower keeps repaying the loan, it will keep on increasing. The exploitation claim has caused so much stress, depression, and psychological pain to the borrowers. Surely, shylocks have gone hi-tech
Kenyans are crying foul over these mobile lenders who are pushing them into serious financial woes. The government has noticed this and CBK Governor Patrick Njoroge says he hopes some of the firms operating mobile phone loan applications would be deregistered, “as they are simply fancy shylocks.”
“There has to be a proper regulation, where similar products are regulated in a similar way so long as you are lending to customers or receiving deposits. If you have a banking function, it’s not just about the name; you have to be regulated in the same way or it will lead to arbitrage,”Dr Patrick Njoroge – CBK – Governor
The Central Bank of Kenya wants digital lending applications to be regulated just like financial products are manned in the banking sector.
CBK governor Patrick Njoroge says the wave of unlicensed digital financial service platforms was robbing desperate Kenyans instead of providing lending solutions.
There’s been an upsurge of easy loan products and the use of digital credit as mobile money transfer services become widespread.
Ease of access to loans is driving the appetite for debt
Unlike traditional lenders that have stringent conditions, mobile loan apps are instant, require zero paperwork, and use alternative credit scoring models, such as mobile money transaction data, to determine eligibility for credit.
What could be more convenient? Statistics from these financing platforms show the appetite for loans runs into the hundreds of billions of shillings. Debt helps drive consumption and demand, which in turn drives economic growth and general social well-being. However, debt also has unintended consequences. The cries of people who are deep in debt traps are becoming louder and louder, with disastrous effects on the socio-economic fabric of the country.
So, why are there so many people being fleeced by these digital shylocks? Desperation for money. Here’s how to avoid the debt trap:
Cash flow management
An SME making sales may realize that the tender they won pays after 90 days. Having borrowed credit from suppliers for 30 days, the entrepreneur is forced to find money to pay creditors and continue running the business to meet the demand for another 60 days. This is a recipe for disaster. Plan your future financial obligations to know how much to save or how much profit to retain.
It’s not free
What mobile loans do is extend your purchasing power beyond your normal income level, with a promise that it’s free if you pay up on time. However, the reality is that you can’t pay it up because your income was never enough to afford it in the first place. Your income for the next month is reduced by the amount that has to pay for the credit, meaning you might have to borrow to cover that hole.
Track where your money goes to capture all your expenditure and identify areas of concern that are against your budget. Next, create a repayment plan to help you get out of debt. Doing so not only helps you address your current predicament but also creates a viable solution to your financial problems.
Work with priorities
Refrain from purchasing items that aren’t critical for survival, but instead, just boost your comfort. Create a priority list to line up your needs and avoid spending on non-essentials, or find cheaper alternatives.