Sending mobile money should be simple, fast, and convenient. One merely needs to access the service provider’s app, enter the recipient’s detail, and your PIN and it’s done in seconds.
But in parts of western Kenya, it now takes patience and lots of inconvenience to remit funds to target recipients. Here it is no longer plausible to send cash into individuals’ mobile wallets without first confirming their debt status because you run the risk of bungling the transactions through docked funds.
Many a time you would have to be given alternative “clean mobile wallets” into which to remit the cash as a strategy to dodge instant deductions by lenders.
The debt-free mobile wallets either belong to third parties or are owned by the same persons who register multiple SIM cards mainly to limit their risk of being blacked out by debt-chasing service providers.
Such inconveniences of debt-soiled mobile wallets are now very common. By the end of the first half of this year, the number of mobile wallets in Kenya had hit the 70.3 million mark against an adult population of 25 million, indicating people have more than two subscriptions amid mobile loan default rate of over 50 percent by households, according to official figures by the Central Bank of Kenya (CBK).
Yet the swapping of mobile money wallets is not just a sign of an ingenious lot desperate to escape financial disruption. It also reflects the depth of turmoil caused by fintech loans that are accessed fast and without strenuous demand for collateral.
Many youth in rural Kenya joining the fray for loans for consumerism. This is reflected in the overall rise in the number of digital loans in the country.
For example, digital loans from the regulated Safaricom’s overdraft service known as Fuliza rose 30 percent in the six months to June 2022, partly fuelled by households seeking to cope with high inflation.
The amount of cash disbursed on Fuliza hit Ksh288 billion ($2.3 billion) in the first half period up from Ksh220.38 billion ($1.7 billion) in the same period of 2021. This translates to about Ksh1.5 billion ($13 million) daily borrowing on Fuliza alone by individuals between January and June 2022, in an economy still ravaged by the aftershocks of the Covid-19 pandemic.
The fintech loans have however left a trail of regret in western Kenya, with residents giving tales of pain including the sale of personal assets to get creditors off their backs.
Paul Opoda, a boda boda rider in Kisumu shares in regrets about taking fintech loans after he was debt-shamed by debt collection agents who informed his relatives about the loan using contact information scraped from his phone.
“In 2021, I was on my way back to Kisumu from Koru Girls High School, which is about 100 km from Kisumu. I had made a delivery there but unfortunately damaged a tyre on a bad stretch of the road and I had no money to replace it,” he says.
“In desperation I logged into a digital loan app and applied for Ksh2,000. The request was promptly addressed, and the amount was sent to me but less Ksh400 in service fees,” he added.
With low business due to the economic shocks of the Covid pandemic, Opoda defaulted on repaying his loan.
Indiscipline and shaming
“Within days of defaulting debt collectors began bombarding me with demands to pay up. Then they called my wife as well as my brother and told them about my unserviced loan. I felt so bad because my privacy had been breached and opted not to repay the loan altogether,” Opoda says.
For Dennis Ogana, a mechanic in Kisumu’s Kamas area, the digital loans have been helpful although lack of financial education and sensitisation is causing nightmares for many borrowers.
“The loans have positive sides as long as you tap them responsibly. I have used the advance for business, and I appreciate them. I think the masses need to be sensitised more about credit in order to restore order,” he said.
Kevin Mutiso, chairman of the Digital Financial Services Association of Kenya blames the chaos partly on financial illiteracy noting that debt-shaming of defaulters is no longer tolerated.
“The shaming has been addressed and some rogue players even kicked out. However, the bulk of debt problems experienced by some customers have to do with consumer behaviour because once you are aware of terms and conditions you should make appropriate decisions” he said.
“There is a lot of borrower education required to avoid most of the experiences some of them go through. Digital loans serve the masses, but consumer education and behaviour make the difference in terms of experience,” he added.
The Central Bank of Kenya (Amendment) Act, 2021, which became effective on December 23, 2021, empowered CBK to license, regulate and supervise digital credit providers (DCPs) to ensure a fair and non-discriminatory marketplace for access to credit.
Subsequently, the CBK Digital Credit Providers Regulations, 2022, were issued and operationalised on March 18, 2022.
Last month, the bank released a directory of licensed digital credit providers. The remaining 200-plus applicants for registration are awaiting review and licencing in order to become fully operational alongside the following:
1. Ceres Tech Limited
2. Getcash Capital Limited
3. Giando Africa Limited (Trading as Flash Credit Africa)
4. Jijenge Credit Limited
5. Kweli Smart Solutions Limited
6. Mwanzo Credit Limited
7. MyWagepay Limited
8. Rewot Ciro Limited
9. Sevi Innovation Limited
10. Sokohela Limited
This story is produced in partnership with the Pulitzer Centre.