The digital lending space

I recently heard an advert in a local vernacular media station of how one does not require a credit officer in a lending institution anymore with the availability of lending options available at the palm of your hands on your phone. The self-appraisal and ease of access was the catch phrase and the enthusiastic radio presenter was surely doing a good job on that advert.  

A quick show of how the digital space has come with several opportunities. The thought of increased liquidity and availability of small business loans and the convenience of accessing monies without the hassle of the informal money lenders are indeed exciting.

We most likely have seen an advert somewhere of applications one can download on a mobile phone, provide personal details and after a review of one’s phone transactions, social media profile and contacts one gets a feedback of some credit limit that can be accessed with the promise to increase the limit on successful payment of loans.  

The offers

Digital loans are packaged quick turnaround applications and have indeed come handy for their users. The need for monies is insatiable at all levels hence the expanding market for the apps.

Onboarding requires one to create a profile and provide an identity document. This can easily be verified through the integrated population register system. Further the apps require one to respond to a simple questionnaire on his or her income abilities and maybe link his or her social media profile to the application.

There is rapid increase of the number of apps offering digital credit. Below is a sample of the lending platforms common in the market.  

Application/Website	Interest Rate in %	Amounts Offered in KShs.	Frequency	Other Fees in %	Annual Rate
Branch	1-13.9	250 - 50,000	Monthly	unknown	12% - 170%
Tala	5 Onwards	1,000 - 30,000	Monthly	unknown	63% Onwards
M-Shwari	7.5	100 - 20,000	Monthly	unknown	91%
KCB Mpesa	14	50 - 1,000,000	Variable	2.5	27% Onwards
Okolea	5 Onwards	Not Defined	Monthly	unknown	63% Onwards
Equitel	14	50 - 1,000,000	Annual	1	27% Onwards
Pesa Pata	30	1,000 - +	Monthly	unknown	365%
Zindisha	5 Onwards	100 - 1,000,000	Variable	unknown	63% Onwards
Okoa Stima	10	100 - 1,000	Weekly	unknown	521%

The price of the convenience comes at a high cost to the borrowers. The lenders have also taken a risk with their capital and have heavily invested to have the apps running efficiently. 

Apart from the nominal rates charged, the apps charge undisclosed amounts in the event of a default. The loans are rolled over and new rates apply to the new amounts in case of a default in the payment time. From the sample above, it’s clear that the loans are costly.

The apps are unregulated businesses, they are thus not required to report in any credit information sharing platform. This increases the potential of multiple borrowing by their customers. Instances of a borrower borrowing from one app to repay another cannot be ruled out.

The lenders have also gone a step further and market their platforms in several ways. An SMS to your phone, a pop up when you login to check mails or catch up with social media. The lenders just know how to create presence.

With the ever expanding digital space in Kenya, Digital credit growth will continue. Whether their practices are ethical or not is yet to get any scrutiny. The markets are moving faster than the regulators. Digital credit has the potential to benefit the consumers but requires regulation to avoid the many risks it comes with.

Kahugu Muiruri

May 24, 2018