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Mobile money transfer: The World Bank’s research affiliate, the
Consultative Group to Assist the Poor (CGAP), warns that mobile based
lending is expensive and hurts the needy. FILE PHOTO | DIANA NGILA
By JAMES NGUNJIRI
In Summary
It was past midday on Saturday. I walked along Gakere Road in Nyeri town to Whispers Park.
The park is now converted into an open air market, thanks to the on-going refurbishment of the main market a few meters away.
As I stood at the edge of the park I heard loud
noises of people talking in different languages mixed with the blare of
matatu horns and the hum of traffic I noticed a trader silently seated
in his stall.
I walked towards the stall and when he saw me he
smiled and beckoned me to buy some fresh fruit. His broad smile
attracted me and in matter of minutes the buyer-seller relationship had
blossomed.
I noticed that he was busy transacting some business on his mobile phone. Text messages kept coming in as he replied.
Then out of the blue he shouted: “I’ve received the
money! My M-Shwari loan has been approved, now I can pay for the
morning deliveries.”
His name, he said, is Cyrus Gichuki, a groceries
trader at Whispers Park. His story is similar to what many ordinary
Kenyans go through every day with the advent of digital credit. To him,
getting a loan through a mobile phone feels different from getting one
through more traditional avenues.
Mr Gichuki said he has been using the M-Shwari
product since its inception, adding that he also uses KCB’s M-Pesa
mobile loan service to finance his business.
“It is easy, convenient, no collateral required and you receive the money instantly,” he said.
“If one is able to repay then one can continue borrowing more and more.”
There are more than 20 digital credit offerings in
the country and new services are being launched continually, attracting
thousands of Kenyans.
But the World Bank’s research affiliate, the
Consultative Group to Assist the Poor (CGAP), warns that mobile based
lending is expensive and hurts the needy.
Mobile lending apps are fast gaining currency in
Kenya, with about a dozen major players in the market — including
commercial banks — launching products such as M-Shwari, M-Co-op Cash,
KCB M-Pesa and Equitel.
Others are the Facebook-linked Branch, Tala, formerly (Mkopo Rahisi), and Saida.
Most of the loans offered by these lenders have a
repayments period of 30 days. Any outstanding balance is rolled over
after the one month and the nominal interest rate is applied.
According to the CGAP findings, M-Shwari is the most well-known
among mobile lenders providing both a savings account and loans from
Commercial Bank of Africa by way of the M-Pesa platform.
CGAP is a global partnership of 34 organisations housed at the World Bank. They seek to advance financial inclusion.
CGAP develops innovative solutions through research
and active engagement with financial service providers, policy makers
and funders.
Many mobile phone users appreciate the convenience
and speed of accessing a loan through their phone as they consider
digital credit a safer option than informal money lenders.
The service offers relatively small value and
short-term loans. Also, most lenders use customers’ mobile phone-based
data, such as calls and SMS records, mobile money transaction history
and social media data to determine a credit score and client’s loan
amount.
However, issues of whether customers understands terms and conditions for the loans have risen.
Mr Gichuki, for instance, did not carefully read and understand the terms and conditions before registering.
“I learnt about the loans through the media and
friends, I never bothered to read that long literature about terms and
conditions,” he said.
Bundled with other products
There are concerns of unclear disclosure of
interest rates, fees and other terms meaning that a customer may not
understand what they are agreeing to.
“Some of the offerings available on basic phones
provide terms only through a weblink and therefore are inaccessible
without an Internet connection,” CGAP states.
CGAP also indicates that some loans are bundled
with other products and their associated fees, which may not be
disclosed to customers.
One practice in the market is bundling a loan with
life insurance, which covers the balance of the loan upon the death of a
borrower.
While borrowers generally consent to the use of
their data for calculating loans, it is unlikely they will read the full
terms and conditions and understand exactly what data will be used by
the lender.
Though digital credit has the potential to benefit consumers, there are risks which must be identified and mitigated. Ngunjirij@ke.nationmedia.com
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