Free Kenyans from the grip of debt bondage
The proliferation of online lending is proof of an increasingly lucrative business driven by a high demand for loans by Kenyans for investment and consumption. The ease with which these loans are dispensed often comes back to haunt the debtors.
And these informal lenders that were perceived as welcome alternatives to the stingy banks and other financial institutions turn around and similarly extract their pound of flesh.
As banks tighten conditions, heavily cutting back on lending to individuals and small businesses, in recent times, informal lenders have moved in to fill the void. Almost everyone gets easily lured by relentless promotions as millions of Kenyans need small loans to make ends meet. Getting a loan is especially easy if one has a mobile phone. However, many default and, already, some 400,000 of them have been blacklisted.
A Central Bank of Kenya (CBK) survey has confirmed that Kenyans are incurring huge costs on loans, especially from informal lenders. They will be trying to run away from expensive bank loans but a good number end up ensnared in mobile app credit, driven by the rising cost of living. Since nearly half of Kenyan adults are ignorant of the cost of credit, they are left at the mercy of some ruthlessly exploitative lenders. That explains the shocking default rates. Only 2.9 per cent of households, for instance, sought advice from formal financial institutions last year; 3.6 per cent relied on media and advertising.
Though hugely popular because of easy access, digital lending has been notorious for lack of transparency on the terms of borrowing and hidden charges. The lenders also engage in unethical debt collection, abuse personal information and extort accrued interest from defaulters. CBK has had to put on notice mobile lenders using unscrupulous methods to lend.
As the need for loans grows, CBK and the National Treasury should seek ways to make formal credit more accessible. Policies to ease terms and conditions, lower interest rates, bank commissions and other charges are crucial.
