Fintech loans leave traces of regret and shame on Kenyans
Sending mobile money should be simple, fast and convenient. One just needs to access the service provider’s app, enter the recipient’s detail and your PIN and it’s done in seconds.
But in parts of western Kenya, it now requires patience and a lot of effort to transfer money to recipients. Here it is no longer plausible to send cash into individuals’ mobile wallets without first verifying their debt status because you run the risk of mixing the transactions through docked funds.
Many times you need to get alternative “pure mobile wallets” that you can transfer money into as a strategy to avoid instant deductions from lenders.
The debt-free mobile wallets either belong to third parties or are owned by the same people who register multiple SIM cards mainly to limit the risk of being blackballed by debt-chasing service providers.
Debt-ridden wallets
Such disadvantages of debt-tainted mobile wallets are now very common. By the end of the first half of this year, the number of mobile wallets in Kenya had reached the 70.3 million mark against an adult population of 25 million, indicating that people have more than two subscriptions with mobile loan defaults in over 50 percent of households. , according to official figures from the Central Bank of Kenya (CBK).
Yet mobile wallet switching isn’t just a sign of a genius crowd desperate to escape financial disruption. It also reflects the depth of the unrest caused by fintech loans that are available quickly and without onerous demand for collateral.
Many youth in rural Kenya are joining the fight for loans for consumerism. This is reflected in the overall increase in the number of digital loans in the country.
For example, digital loans from the regulated Safaricom’s overdraft service known as Fuliza rose 30 percent in the six months to June 2022, driven in part by households looking to cope with high inflation.
Covid aftershocks
The amount of cash disbursed on Fuliza reached Ksh288 billion ($2.3 billion) in the first half of the year, up from Ksh220.38 billion ($1.7 billion) in the same period of 2021. This equates to about Ksh1.5 billion ($13 million) in daily borrowing at Fuliza alone by individuals between January and June 2022, in an economy still ravaged by the aftershocks of the Covid-19 pandemic.
However, the fintech loans have left a trail of remorse in western Kenya, with residents telling stories of pain including selling personal assets to get creditors off their backs.
Paul Opoda, a boda boda rider in Kisumu regrets taking fintech loans after he was vilified by debt collectors who informed his relatives about the loan using contact details scraped from his phone.
“In 2021, I was returning to Kisumu from Koru Girls High School, which is about 100km from Kisumu. I had delivered there, but unfortunately damaged a tire on a bad stretch of road and I didn’t have the money to change it, he says.
“In desperation, I logged onto a digital loan app and applied for Ksh 2,000. The request was processed immediately and the amount was sent to me but less Ksh400 in service charges,” he added.
With business low due to the financial shocks of the Covid pandemic, Opoda defaulted on its loan repayments.
Indiscipline and shame
“Within days of default, debt collectors began bombarding me with demands to pay up. Then they called both my wife and my brother and told me about my unpaid loan. I felt so bad because my privacy had been violated and chose not to repay the loan completely, says Opoda.
For Dennis Ogana, a mechanic in Kisumu’s Kamas area, the digital loans have been helpful, although lack of financial education and sensitization is causing nightmares for many borrowers.
“The loans have positive aspects as long as you lose them in a responsible way. I have used the advance for business and I appreciate it. I think the masses need to be sensitized more about credit to restore order, he said.
Kevin Mutiso, chairman of the Digital Financial Services Association of Kenya, blames the chaos in part on financial illiteracy, noting that debt shaming of defaulters is no longer tolerated.
“The shaming has been addressed and some rogue players have even been kicked out. However, the bulk of the debt problems experienced by some customers have to do with consumer behavior because once you are aware of the terms and conditions, you should make appropriate decisions, he said.
Supervisory function
“It takes a lot of patron education to avoid most of the experiences some of them go through. Digital loans serve the masses, but consumer education and behavior make the difference in terms of experience, he added.
The Central Bank of Kenya (Amendment Act), 2021, which came into force on 23 December 2021, empowered the CBK to license, regulate and supervise digital credit providers (DCPs) to ensure a fair and non-discriminatory marketplace for access to credit .
Subsequently, the CBK Digital Credit Providers Regulations, 2022 were issued and operationalized on 18 March 2022.
Last month, the bank published a directory of licensed digital credit providers. The remaining 200-plus applicants for registration are awaiting review and licensing to become fully operational along with the following:
1. Ceres Tech Limited
2. Getcash Capital Limited
3. Giando Africa Limited (trading as Flash Credit Africa)
4. Jijenge Credit Limited
5. Kweli Smart Solutions Limited
6. Mwanzo Credit Limited
7. MyWagepay Limited
8. Rewot Ciro Limited
9. Sevi Innovation Limited
10. Sokohela Limited
This story was produced in collaboration with the Pulitzer Center.
