It is death by suicide that jolted Kenya’s
top financial regulator and sparked one of the most compelling moral
conundrums for the fintech-fuelled digital lending craze in the country.
The
shocking revelation by the Central Bank of Kenya (CBK) last week that a
middle-aged man took his life after failing to withstand harassment and
public shaming by an unnamed digital lending application, has ignited
debate on the radical evolution of the many platforms that disburse
loans via mobile phones.
“In
November last year, a lady came to the Central Bank to explain to us
that her husband had committed suicide after getting involved with one
of these lenders,” she said.
CBK
Deputy Governor Sheila M’Mbijjewe revealed the incident, which was
reported to the regulator by the distressed family of the victim.
The aggressive nature with which online lending firms
deploy to collect what they advanced has become so alarming that no
less than the CBK wants new laws to stop cyber shaming by these
cloud-based facilities.
“What
this lender did is that when her husband was unable to pay the debt
through the contact list of her husband, [the lender] started sending
messages to all of them, including his mother, his grandmother and his
aunt,” she said.
HUMILIATED
Days
after the Central Bank deputy boss made the revelation, more Kenyans
have come out publicly to tell of their harrowing experiences in the
hands of digital lenders.
Many
who sought anonymity for fear of being humiliated further likened the
apps to modern day loan sharks, which can wreck people’s lives in case of default.
Loan sharks are criminals who charge extortionist interest rates and use callous methods to force people to pay the money back.
Victims who spoke to Smart Company
said the harassment and shaming started when they failed to pay their
balances on time as a result of circumstances beyond their control.
Those
who have come forward said people behind the lending app repeatedly
called or sent text messages to their contact list including employers,
business partners, spouses, relatives and friends about their inability
to return the money, causing them embarrassment and emotional stress.
Upon downloading, mobile apps require access to contact information, photos, files and documents saved in the borrower’s phone.
Once those have been submitted, the online loan application can proceed.
If
a borrower fails to pay on time, all of his or her phone contacts
receive a collection text message or call stating the borrower’s full
name and outstanding balance, affected borrowers said.
Regulators
and consumer lobbies earlier raised the red flag about customer data
protection by the credit-only lenders, the high interest rates or
transaction fees that they charge borrowers, multiple borrowing from
different lenders, non-disclosure of pricing terms and their lack of
dispute resolution mechanisms.
DESPERATION
The
unregulated credit-only institutions are fast growing partly due to
people’s desperation for cash, healthcare or school fees. Borrowers in
most cases enter into the arrangements under duress.
With
their exorbitant interest rates and conditions, microcredit from the
online lenders has plunged many borrowers into a debt trap.
Those
who spoke to us said they have been forced to contract multiple loans
to pay back for the former ones, and to make huge sacrifices to
reimburse them over weeks and months.
Many who spoke to Smart Company anonymously said the loans had plunged their lives into a vicious cycle of austerity, unemployment and poverty.
Dozens
of unregulated microlenders — many backed by Silicon Valley Venture
capital firms — have invaded Kenya’s credit market in response to the
growth in demand for quick loans.
Their
proliferation has saddled borrowers with high interest rates, which
rise up to 520 per cent when annualised, leading to mounting defaults
and an ever-ballooning number of defaulters who have been adversely
listed with credit reference bureaus (CRBs).
John
Kamau, not his real name, told Smart Company he had no idea what he was
getting into when he took out a 30,000 loan with an online lender in
2016 for his cyber café business.
“Like
a lot of small businesses and individuals, I made a bad decision by
getting into high-interest loans by an online lender,” he said.
The loan was approved in under five minutes, and at the time, it seemed like a good deal, he said.
Kamau later realised that the annualised interest rate on his loan was in fact 500 per cent, which he admitted was “shocking.”
“It’s like a slow death,” he said. “You repay with a lot of hardship.”
Kamau
is just one of the small business owners around the country and
individuals who, having failed to secure a traditional loan from a bank,
turned to online alternative lenders to stay open.
What
credit seekers such as Kamau encounter are loans without clearly
stipulated terms and a dearth of regulation and oversight. Business
owners who aren’t careful can find themselves in extremely uncomfortable
positions.
Many alternative
lenders take advantage of their non-bank status that allows them to
avoid usury laws, which encourage lower interest rates.
LAW IN THE PIPELINE
Amid
the harrowing tales by victims of public shaming and harassment by the
digital lenders, the CBK deputy boss on Thursday last week said the
regulator and the Treasury were preparing a law that will, for the first
time, cover digital mobile lenders in fresh efforts to curb their
exorbitant monthly interest rates.
“The
government is quite clear that we will change the laws to enable us
oversight these lenders. They cannot continue the way they are currently
operating,” she said.
“We have a
lot of predatory lending out here, which we want to regulate,” she
said, adding that the aim of the proposed law is to ensure that digital
lenders treat retail customers fairly.
The push to control digital lenders comes two months after Kenya removed the cap on commercial lending rates.
Introduced
in September 2016, the law reduced private sector credit growth as
commercial banks turned their backs on millions of low-income customers
as well as small and medium-sized businesses deemed as too risky to lend
to.
“CBK action is long
overdue,” said the Consumer Federation of Kenya (Cofek)
secretary-general Stephen Mutoro in reference to the banking regulator’s
new push for laws to rein in the online lenders.
“[This
is a] case of too little too late as millions of unsuspecting Kenyans
continue to nurse their financial wounds from predatory, shadowy and
criminal digital lenders.”
The
credit crunch that followed the rate cap triggered an appetite for
digital loans, leading dozens of unregulated firms to invest in Kenya’s
credit market in response to demand for quick loans.
Market
leader M-Shwari, Kenya’s first savings and loans product introduced by
Safaricom and Commercial Bank of Africa in 2012, charges a “facilitation
fee” of 7.5 per cent on credit regardless of its duration, pushing its
annualised loan rate to 395 per cent.
Tala
and Branch, other top players in the mobile digital lending market,
offer annualised interest rates of 152.4 per cent and 132 per cent
respectively.
Digital loans are
short-term, typically with a repayment period of less than one month.
Borrowers who repay their loans earlier are still required to pay the
full amount, effectively pushing up their annualised percentage interest
rates.
Borrowers who roll over
their loans are still required to pay interest on the outstanding
amount, with some lenders charging an additional late repayment penalty.
Listing
borrowers with CRBs and charging late repayment fees are the most
common methods lenders use to deal with cases of failure to repay the
loan within the agreed period.
Banks,
microfinanciers and saccos are regulated under the CBK Act and the
National Payment System Act while chamas are regulated under the
Societies Act.
CBK licenses and regulates electronic retail payment service providers in addition to all deposit-taking financial institutions.
No comments :
Post a Comment