Kenyans’ dilemma with money lending apps

Digital lending apps are leaving millions of Kenyans trapped in indebtedness, an expert has told the BBC.

According to Keren Witzberg, an expert on tech and surveillance in Kenya, the problem is worsened by the involvement of the Kenyan government in the digital lending sector.

Safaricom, the country's largest telecoms company and one of the biggest digital lenders, is a company partly owned by the state.

The money-lending apps were initially a boon to young, poor Kenyans with no access to credit facilities.

There are around 50 money-lending apps in Kenya with many made in Silicon Valley.

Consumers can borrow amounts from $2 (Ksh210) to $30 (Ksh3, 100) just by entering their details into the app and the money is deposited into their mobile accounts.

"On one hand this is very convenient for consumers, but it is in fact causing problems. Millions of Kenyans are now finding themselves trapped in cycles of debt and blacklisted as defaulters with credit reference bureaus, some for taking loans as small as $2 (Ksh210), to $4 (Ksh415)," she told BBC Newsday.

"This is a case of tech outpacing regulation, consumer education and consumer protection... Some [customers] even didn't know what a credit reference bureau was or what the implications of their credit score were," said Ms Witzberg.

Kenya Bankers Association, the lobby group for lenders, released a report this month that revealed that one in five loans taken through mobile phone platforms is in default.

Kenya's digital lending sector has attracted the attention of multinational banks, telecommunication companies like Safaricom, as well as Silicon Valley-based startups.

Their marketing strategy has been to make borrowing seem harmless, the expert argued.

"[They] are sending out messages that are very tempting to the Kenyan consumer and just make taking up credit almost seductively easy," she said.

Safaricom customers borrowed £626m (Ksh64.9 billion) over the first six months of this year on the Fuliza overdraft facility.

The company, on its website, insists that the facility is not a loan but "a continuous overdraft service that allows you to complete transactions when you have insufficient funds".

Central Bank of Kenya (CBK) governor Patrick Njoroge last year told Kenyan MPs that digital lenders were worse than village shylocks.

"At least shylocks hide. These platforms shout about themselves openly while impoverishing Kenyans," Mr Njoroge said.

He said there are plans to regulate the industry on issues regarding high-interest rates or transaction fees, clear disclosure of pricing and terms and customer protection.