July 20, 2018

Kenyans, now enslaved by mobile loan Apps, survey reveals

The advent and proliferation of mobile loan apps has continually imprisoned Kenyans to a never-ending cycle of borrowing from digital loan platforms.

According to a new survey, the presence of digital loan platforms has not made life better for Kenyans as would be expected, but they are now a source of money for repaying other debts and even gambling.

The joint survey conducted by the non-state financial inclusion agency – FSD-Kenya, Central Bank of Kenya, Kenya National Bureau of Statistics and Consultative Group to Assist the Poor has not bettered lives.

“Digital credit is not reaching everyone and remains ill-suited for most of the population, such as farmers and casual workers, whose livelihoods are characterised by irregular cash flows,” the phone survey according to Daily Nation indicates.

About 6.5 million Kenyans are digital borrowers according to the survey. Of these, 31 per cent use the proceeds of the loan to gamble.

Twenty thousand Kenyans which translate to about 3 per cent reportedly said they have been taking loans on these platforms and using it to bet another 16 per cent said they have never applied for a mobile money loan from the platforms available.

The reports showed that about 800, 000 Kenyans use the platforms and take out loans to meet basic needs and add stock in small businesses. But a big number use this money to repay other loans.

Digital loans are easy to obtain because they are offered by several banking institutions and non-banking institutions. However, they are characterized by high interest rates, hefty penalties and a short term repayment period.

About three million borrowers were penalized for late repayment while 9 per cent were reported to Credit Reference Bureau for defaulting.

The survey has thus, raised the risk of excessive borrowing among lower-income households.

“Half of borrowers spent their savings to repay loans, 20 per cent of loanees reported reducing food purchases and 16 per cent reported borrowing (mostly through family and friends). Poor business performance and loss of jobs in 2017 were the main cause of default.”

Given that the digital loan platforms are not regulated by CBK which prescribes a maximum of 13.5 per cent on loans, these platforms charge anything between 7 to 10 per cent on a month-loan.

The survey has called on the government to legislatively establish an oversight authority to scrutinize the lucrative interest rates and penalties used by the digital loan providers.

It also proposed further studies on product innovation with an aim to promote proper use of loans in ensuring digital borrowers are not stuck with low-value, short-term, expensive credit despite building positive credit histories.

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