Third Eye

Save Kenyans from digital loan sharks

Wednesday, November 10th, 2021 12:11 |
Experts say the rise in the popularity of mobile loans could be attributed to the proliferation of digital lenders and effects of the rate caps which was repealed last year. Photo/PD/File

Digital lending platforms, which provide people easy access to loans of various amounts, have grown exponentially in the recent past with more than 120 online lenders operating in the country today.

The big number should raise regulatory concerns since the digital lenders seem to act in isolation. Unfortunately, countless petitions show that some of these digital micro-finance institutions have turned into sharks exploiting consumers. This is disturbing.

At a time when the economy is recovering from effects of the Covid-19 pandemic knocks and lockdowns that denied Kenyans opportunities to generate income, these digital platforms have continued to impoverish borrowers through draconian interest rates. The pain meted upon consumers is akin to economic sabotage.

While the State tried to aid Kenyans through various stimulus packages to enable them to put food on the table due to tough economic times, these platforms are charging consumers crazy interest rates, to the detriment of needy Kenyans.

Dozens of loan apps have been found to charge exorbitant interest rates and to have exploitative terms.

This includes issuing 30-day loans instead of the 60 days stipulated by Google Play Store policies, with some platforms collecting in excess of 400 per cent annualised rates, yet banks’ yearly rates rarely exceed 20 per cent.

The economic pain is palpable considering that consumer intelligence firm ReelAnalytics estimated that about 55 per cent of the surveyed Kenyans said they had acquired loans from these entities.

There is a need for sanity in this sector, which seems to be a double-edged sword to consumers.

Despite claims that the cash mostly goes to fund SMEs, pay bills and quick solutions such as cooking gas, fuel and personal use; forcing Kenyans to pay such punitive interest rates is wrong.

Further, some of the lenders have resorted to debt-shaming practices during debt collection whereby some platforms use contacts on the customers’ phone book to try and get them to pay back a loan.

Such behaviour not only goes against Kenyan data protection laws, but reeks of indignity, robbing people of privacy and infringes on consumer rights.

That is why the Central Bank of Kenya must fast-track ongoing plans to regulate digital lending by ensuring they are licensed and fully comply with data protection laws or risk cancellation of their licences if the Central Bank (Amendment) Bill, 2021, sails through Parliament.

Indeed, the time for the regulator to crack the whip is now. 

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