This series is produced in partnership with the Pulitzer Center.
Sending mobile money should be simple, fast and convenient – go to the app, enter the recipient’s details, the amount and your PIN and voila!
But in most parts of western Kenya, it now takes patience and lots of inconvenience to remit funds. Here you can no longer send cash into someone’s mobile wallet without first confirming their debt status lest the funds be docked.
In many instances, you will be given an alternative “clean” mobile money wallet into which to remit the cash for the recipient to dodge instant deductions by lenders. The debt-free mobile wallets either belong to third parties or are owned by the same persons, who register multiple SIM cards.
By the end of the first half of this year, the number of mobile wallets in Kenya had hit 70.3 million, against an adult population of 25 million, indicating people have more than two subscriptions. The mobile loan default rate by households was over 50 per cent, according to official figures by the Central Bank of Kenya (CBK).
Yet the swapping of mobile money wallets is not just a sign of an “ingenious” lot seeking to escape financial disruption. It also reflects the depth of turmoil caused by the United States Silicon Valley fanned fintech loans that are accessed fast and without demand for collateral.
Until recently, loans were revered and mostly tapped by older urban working-class members of households pressed for primary reasons such as medical emergencies, school fees, or housing needs. The explosion of fintech has, however, brought about a revolution as many youthful members of households in rural Kenya join loans bandwagon, often for consumerism purposes.
This reflects in the overall rise in the number of digital loans in the country. For example, digital loans from the regulated Safaricom’s overdraft service known as Fuliza rose by 30.7 per cent in the six months to June this year, partly due to households seeking to cope with high inflation.
The amount of cash disbursed on Fuliza hit Sh288 billion ($2.3 billion) in the first half of the year, up from Sh220.38 billion ($ 1.7 billion) in the same period last year. This translates to about Sh1.5 billion ($13 million) daily borrowing on Fuliza alone, in an economy still ravaged by the aftershocks of the Covid-19 pandemic.
The fintech loans have left in their wake a trail of debt captivity and regret in western Kenya, where poverty remains widespread after decades of neglect by successive governments and the collapse of mainstay sectors such as the sugar and fishing industries.
Residents here give tales of pain, including the sale of personal assets such as livestock, to get creditors off their backs, mortgaging their wages to offset their loans, and shaming by debt collectors.
“My child had been sent away for school fees arrears in 2019. Without an option for funds, I took a loan facility with Branch International. They first gave me Sh2,000 against a salary of Sh7,000 and with a high monthly interest rate of 14 per cent,” Zephania Khamasi, a security officer in Kisumu said.
“With this, I was trapped in debt and had to keep borrowing to stay afloat. My salary had been tied to the debt and at the end of each month, I felt so hopeless. I had a salary on paper but little to take home. I borrowed from them nine times and felt deeply enslaved until I opted out in 2021,” he added.
For Salome Otieno, a 58-year-old widow in Kano, Kisumu County, a Sh2,000 fintech loan took her through a nasty experience about two years ago that she will not forget any time soon.
“I had a bad malaria attack in 2020 and without money to attend hospital. My grandson hinted to me about digital apps and I signed up for some Sh2,000 from one of the lenders. Little did I know what I had got into. First of all, I only received about Sh1,600 of the amount I had applied for because they had deducted a service charge of Sh400. The interest charge was also quite high at about 15 per cent monthly, and they didn’t reveal that to me from the beginning,” she narrated.
“I serviced my loan for some time, but because the Covid-19 pandemic affected my tiny sisal rope weaving business, I went a month or so without paying. What followed was a nightmare of calls by debt collectors,” Ms Otieno said.
“One caller even told me they had traced my homestead and would come with the police if I didn’t pay up in four days. Confused and panicked I sold off one of my goats just to get these people off my back. I will never go back there.”
One of her close friends had a nastier experience. “The debt collectors threatened her with arrest, she deserted her home for about a week out of fear. She put up with a relative in Awasi town and only returned after the debt collectors stopped their threats” Ms Otieno said.
Paul Opoda, a boda boda operator in Kisumu shares in the regrets. He was debt-shamed by debt collection agents who informed his relatives about the loan using contact information from his phone.
“Sometime in 2021, I was on my way back to Kisumu from Koru Girls High School which is about 100 kilometres from Kisumu. I had made a delivery there but unfortunately damaged a tyre on a bad stretch of the road and I had no money to replace it” he says as he rests on the saddle of his motorcycle on Kisumu’s Jaramogi Oginga Street. “Out of desperation I logged into a digital loan app and requested for Sh2,000. The amount was promptly sent to me but less Sh400 in service fees.”
Thanks to low business due to the Covid pandemic, Opoda defaulted on his loan.
“Within days of defaulting debt collectors began bombarding me with demands to pay up. At first, I took it lightly as I looked for some money to repay. I was however heart broken when the debt collectors called my wife and my brother and told them about my unserviced loan. I felt so bad because my privacy had been breached and opted not to repay the loan altogether,” Opoda says.
Alfred Oduor, a mechanic in Kisumu, also had an unpleasant experience with fintech loans.
“I took a loan of Sh2,500 from Tala around 2017. I was desperate for some cash to buy a few things to use at my garage” he recounted. Matters took a nasty turn after he defaulted on his loan.
“The fintech loans are dehumanising and I wouldn’t want to wish on anyone the shaming experience I had. I was intimidated and embarrassed by debt collection agents who would call me up to three times a day with unrelenting threats,” the mechanic said. He added that the agents also got contacts from his phone book and began calling his affiliates to push for repayment.
“They called my main customer who reached out to me. I found this deeply embarrassing and improper and looked for money and paid. That embarrassment made me part ways with Tala and I am not going back there” he says.
For Dennis Ogana, a mechanic in Kisumu’s Kamas area, the digital loans have been helpful.
“The loans have positive sides as long as you tap them responsibly. I have used them for business and I appreciate them. I think the masses need to be sensitised more about credit in order to restore order,” he said.
Kevin Mutiso, chairman of the Kenya Digital Financial Services Association of Kenya blames the chaos partly on financial illiteracy and indiscipline, noting that debt-shaming of defaulters is no longer tolerated.
“There is a lot of borrower education that is required to avoid most of the experiences some of them go through,” he said.
TOMORROW: The Maasai shylocks of Kisumu thriving on fintech loan blacklists.