This is the experience many Kenyans have faced since the proliferation of mobile loan apps nearly 10 years ago, and for one Nairobi pastor, his experience lasted nearly three days.
Whilst mobile apps have provided credit options for consumers at the bottom of the financial pyramid, the accompanying debt shaming is casting a shadow on the dream of financial inclusivity.
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.”
For three days Pastor Kimani found himself unable to use his phone as it was constantly engaged by the debt collectors. Out of frustration his wife tried to speak to them and their responses turned vulgar.
These phone conversations are a classic example of debt shaming, which refers to the use of a borrower’s social circles to shame them into repaying a loan.
“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.
An audit report by FSD Kenya in 2019 revealed 110 digital credit providers offering loans between Ksh.1,000-Ksh.16,000 on first attempt.
While some of the lenders have sought to comply with existing legislation, others are engaging in questionable and fraudulent practices, outrightly breaching existing laws.
Many mobile lending platforms are privately held, and some are foreign-owned and are not subject to public disclosure laws.
With most of the foreign lenders funded by investors, they use the first loan to gauge the trustworthiness of an individual before offering further credit.
But to truly understand how we got here, you need to go back at least 20 years before the widespread uptake of the internet, the mobile phone and mobile money.
In those days, getting a loan from a bank was a usually an arduous affair, because it involved travelling to your nearest bank branch, providing all the necessary documents including an asset as collateral, submitting your application and after all that the chances of your application being rejected was very high.
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.
In countries like Benin, Rwanda, Senegal and Tanzania, microfinance through mobile loans has become the only lifeline for low-income earners who are largely in informal sectors and some of the traders in Kenya feel the same.
But whilst Kenyans have been quick to embrace mobile loans, few understand the interest implications of these quick fixes.
The average bank loan will accrue interest of 12 – 14 % per year, but in a survey of several mobile loan providers, the interest rates varied between 75% up to 395% per year.
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.
So how can Kenya fully harvest the benefits of technology-driven financial inclusion whilst reining in on unethical loan providers? Some say regulation is the way to go and after a long wait, Kenya passed a comprehensive data protection legislation – the Data Protection Act of 2019 which was assented to by the president on November 8, 2019.
The act brought into play comprehensive laws that protect the personal information of individuals.
Key concerns include the fact that most consumers often do not know what data is being used or how their data is being shared, and neither can they easily control it.
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.