Picture this: someone puts you as a guarantor for their mobile loan and then defaults. The debt collector then decides that they will harass you on phone, calling you with multiple numbers until the person who’s number appears first picks up–which usually takes only two or three calls if it is not answered immediately. This has been an experience many Kenyans have faced since the proliferation of mobile loans nearly 10 years ago, but one Nairobi pastor had to endure his ordeal over 3 days long because he was in attendance at church all day every Sunday without fail throughout those six weeks when I was there talking about financial inclusion through lending circles…
Pastor John Kimani Ngure recently found himself on the receiving end of an unrelenting debt collector keen to collect on a loan that one of his congregants took.
“Nilipigiwa simu na mtu akajitambulisha kwamba anatoka mojawapo ya hizi kampuni na akaniambia kuna mshirika amechukua loan na amekosa kulipa wakati waliyokubaliana,” said Pastor Kimani.
“Nikajaribu kusema mimi sina capacity ya kuitisha washirika pesa zao, akaniambia si kwamba nataka ama sitaki, itabidi nimfuatilie la sivyo kuna consequences.”
Pastor Kimani was unable to use his phone for three days as it kept ringing with debt collectors. His wife tried speaking to them, but their responses turned vulgar in nature. This is a classic example of debt shaming – the act of using someone’s social circles to shame them into repaying loans taken out by third parties on behalf of that person and making personal information public if they refuse repayment.
“Debt shaming is a practice that started in China, because in that market the social construct is that if Waihiga has taken a loan and it is known that he has defaulted, the shame on him and his family is quite big. In Kenya, culturally, we now know that that is not something that is acceptable. We have two rogue actors who are very well known for perpetrating this bad behaviour, we have tried to reach out to them and they have refused to come to the table to talk,” said David Mutiso, Chair, Digital Lenders Association of Kenya (DLAK).
The act has become so pervasive that recently several mobile lenders came out to distance themselves from the act.
“Niliwaambia ntarecord nipeleke kwa media na CID wakaniambia tafadhali record. When we get to that point, ni mahali pa hatari sasa,” said Pastor Kimani.
“The pastor did not consent to be called by the lender, did not consent to be a guarantor to the loan, therefore legally they had no right to call him,” stated Mr. Mutiso.
With 110 credit providers offering loans between Ksh.1,000-Ksh.16,000 on first attempt and some of the lenders have already complied with existing legislation while others are engaging in fraudulent practices or outrightly breaching laws such as private lending platforms that are mostly privately held and foreign owned which makes them not subject to public disclosure law leaving people unaware about what they can expect from their lender when it comes to interest rates etc., many Kenyan citizens find themselves struggling for credits due to this lack of knowledge often displaying an unfavorable attitude towards paying back debts since there is always a trust issue involved where borrowers then feel like they were deceived by their lender because these institutions never disclosed all information at once especially related points pertaining mention how much will be charged per day
The banking system was a different beast before the advent of ubiquitous computing. Credit for new ventures or those in need were hard to come by, and it usually took hours upon hours of footwork just to get through all the red tape at one’s local bank branch office. But that is finally starting to change with mobile lending apps like Zilpaqa P2P Lending App.
But in Kenya today, a loan is literally five minutes away at the click of a button and banks have now been replaced by hundreds of apps hawking loans.
“Even the most poor can actually borrow, there are women who borrow very early in the morning and sell their goods and repay the same day. They hardly pay any interest rate, meaning they’re getting cash to enable them earn a living,” says Bitange Ndemo, Professor of Entrepreneurship.
But this new form of credit comes with some rather punitive terms and conditions, and the easy access to the loans could lead to a vicious cycle of borrowing from Paul to pay Peter.
Whilst some of the methods employed by a few loan collectors are clearly illegal, the uptake of mobile loans both prior to and after COVID-19 hit the country is undeniable. Kenyans borrowed Ksh.1.2 billion daily in 2020 on M-Shwari and Fuliza alone.
For many low-income earners in countries like Benin, Rwanda, Senegal and Tanzania the only lifeline is through microfinance loans. However these quick fixes come at a cost as Kenyans are unaware of the interest rates which vary between 75% up to 395%.
In addition, some of the lenders have been accused of predatory lending practices, with one Chinese-based lender accused of requiring loan repayments within 30 days whilst Google, the host of these apps, requires borrowers to be allowed 60 days to repay.
“Last year we came out very strongly against certain rogue actors in our sector. We actually called them out publicly and reported them to the various stakeholders including the Central Bank and Treasury,” added Mr. Mutiso.
What are the benefits of technology-driven financial inclusion and what can Kenya do to reining in on unethical loan providers? Some say regulation is the way to go, while others believe that education should be prioritized. After a long wait, after finally passing some comprehensive data protection legislation – which was assented by president Kenyatta on November 8th–Kenya now has appropriate laws governing how personal data is used or shared with other companies for commercial purposes. The act also brought into play measures such as implementing more stringent penalties against those who violate these regulations. Concerns include an understanding about what kind of information it being collected (or why) and whether people understand this process at all; either they have no idea where their own information is
Research by FSD Kenya suggests that two out of three Kenyans experience debt stress, a situation where they’re forced to skip meals so as to service their loans.
“Those that believe they can’t survive in a sector under supervision, that is fine they can go. I think the expectation that just because somebody is lending using a mobile phone they can do whatever they like… maybe they can go to the Wild West, that is where they belong not in a proper economy,” said CBK Governor Patrick Njoroge during a past presser.
But not everyone fully agrees with the governor on regulation as the silver bullet to the challenges the sector faces.
“The problem comes to those who borrow to do betting and they default and then their names were getting into the Credit Reference Bureau (CRB) and that’s how Central Bank stepped in to say No,” said Ndemo.
“So we’re complicating things when we’re just about to help the people at the bottom of the pyramid to benefit from these innovations. I plead with the government to do studies about this new legislation which is being pushed by Treasury before they make decisions which will impact on innovation in this country.”
In the meantime, what can anyone who has been harassed by these debt collectors do to complain about data privacy infringement?
“Write a formal letter to two offices seeking action and enforcement of the Data Protection Act and a fast-track of the CBK Amendment Bill 2021. We have the office of the data protection commissioner, and also write to the Parliamentary committee on finance and national planning as they’re reviewing the bill,” stated DLAK boss Mr. Mutiso.
Experts predict that in the near future, local lenders could soon offer services like mortgages on your phone, but they admit that with the growing financial inclusivity, greed and simple bad manners will continue to cloud its future, and technology alone will not be able to keep sanity in this fast expanding sector.