Kenya has digital lending regulations in place that, according to experts, are not effectively enforced, leaving creditors vulnerable to exploitation by lenders.
These experts have criticized digital lenders for imposing exorbitant interest rates on clients, in addition to what they perceive as violations of consumer rights.
The average interest rate for a 30-day digital loan varies from 20 to 30 percent, depending on the perceived risk profile of the borrower.
Consequently, for a Sh1,000 loan, the new exercise duty will range between Sh40 and Sh60.
“Somebody borrows Sh3, 000 for instance and the lender expects him to pay double amount of the money. This at times brings lots of conflicts in terms of loan repayment or recovery,” said financial analyst Daniel Ogachi.
The experts spoke during a Digital money consumers’ sensitization meeting at a Nairobi hotel on Saturday.
They said consumers’ rights must be protected at all costs.
Ogachi said high interest rates charged by digital lenders cause disconnect between them and borrowers.
He called for fair digital financing among lenders in the country.
“When we talk about fair digital financing, we mean that rights of consumers borrowing money from online lenders must be protected,” Ogachi said.
Digital finance or lending involves getting loans through mobile applications whereby consumers are able to borrow loans on their mobile phones.
Central Bank of Kenya recently said there were 400 pending applications for digital lenders with majority of those unlicensed still in operation. CBK said there are only 32 players registered to operate in the Kenyan market.
According to Mobile Money for Financial Inclusion Report 2022, digital lending contributes to 54 percent of the country’s total borrowings, this amounts to around 116 billion shillings each year of the total money borrowed on mobile applications.
Ogachi raised concerns on protection of consumers’ data by the lenders stating most of them weren’t protected.
He claimed that’s why at times people borrow money using others’ sim cards.
“Then the lender will just be calling innocent people to request for loans repayments that wasn’t taken in favor of these people. We don’t have clear rules and regulations guiding this whole process,” Ogachi said.
Ogachi said there was need to have financial inclusion between lender and borrower.
Youth Education Network project officer Michael Mungoma said they champion consumer issues ranging from education to protection.
“Consumer organizations are important as government watchdogs to ensure that consumers are protected, empowered and in changing space where there are lots of products and services, the framework for protecting consumers need to reflect what consumers really want,” Mungoma said.
Mungoma said despite the existence of Consumer Protection Act in the country, there are challenges in implementation.
He said technology had brought its new angles and digital financing is one of those areas that require proper watch.
“Consumers continue seeking services and products including loans, interacting with mobile money transfers, Kenya being one of the icons where mobile money transfers are involved,” Mungoma said
Mungoma said there were gaps with the entry of other players that are non-traditional banks who are able to engage consumers despite data protection policies and laws in the country.
“We still experience lots of gaps in terms of access to information for consumers which enable some of these lenders to go beyond what is expected of them in the framework provided by the law. They are able to access information about consumers’ age, trends and manipulate it to advertise or reach out to seek loans,” Mungoma said.
Mungoma added that consumers need to know available redress mechanisms and protection.
The CBK digital credit providers’ regulation of 2022 states that all digital providers should be licensed within six months of the law’s publication. The regulation took effect on March 18, 2022.
Source: The Star