The operations of digital money lending institutions in the country have come under scrutiny as parliament launches investigations over allegations of operating illegally and that they have become exploitation tools against a majority unsuspecting Kenyans.
A petition filed in the National Assembly by Mathare MP Antony Oluoch wants a House committee set up to probe illegal and exploitative tendencies with a view of stopping their operations on account that they have become social evils.
The MP also wants the Central Bank of Kenya (CBK) and Communication Authority of Kenya to audit the operations of all the digital lending platforms and formulate regulations to govern their conduct.
“Digital borrowing has become a social menace responsible for suicides, divorce, family breakup and increased listing of loan defaulters by the Credit Reference Bureau (CRB),” Mr Oluoch says in the petition.
House Speaker Justin Muturi committed the petition to the Finance and National Planning Committee, chaired by Kipkelion East MP Joseph Limo.
The committee has 60 days, in line with standing orders, to table a report to the House for consideration.
Interest on savings
Details show that the lenders charge an exploitative interest rate as high as 19.1 percent. Conversely, the digital lenders give between 6.5 and 7.35 percent interest on savings.
“Considering mobile lenders are not recognized as financial institutions under regulation and supervision by the CBK under the Banking Act, they operate bereft of regulation, including tax obligations,” says Mr Oluoch.
A recent report by the CRB indicated that more than 2.7 million Kenyans are already blacklisted for defaulting the expensive mobile loans.
Tala, M-swari, and Fuliza operated by Safaricom, KCB Mpesa, Timiza by Barclays now Absa, Branch, Shika, Ipesa, Berry, Okash and Zenka, are some of the more than 50 mobile and online credit providers in the country with 19 million Kenyans as active borrowers.
According to a survey by the Kenya National Bureau of Statistics (KNBS), about 40 percent of the borrowers have multiple loans- from 6 to 10 mobile lending applications.
The survey further indicates that due to the lack of proper regulation, the mobile lenders infringe on clients’ right to privacy by accessing customers’ contacts to call friends and family about the borrowers’ inability to pay their debts.
Mr Oluoch notes that these institutions continue to lure and trap borrowers into unnecessary borrowing and vicious cycle of expensive loans- rendering them destitute.
The lenders, among others, ease the borrowers’ accessibility on the internet as a bait to borrow more and later raising the loan limits upon repayment of the initial loan.
The lenders are also on the spot for failing to disclose full lending terms, making it easy for Kenyans, especially the jobless youth to borrow for betting or to repay previous loans instead of investments.
“Mobile loans are expensive due to the short term repayment, high facilitation fee charged and transaction charges that have pushed the average lending rate to about 19 percent in interest,” says the Mathare MP.
The minimal efforts, which have been made by the CBK to address the money lending and claims of money laundering by the lenders, the legislator claims, have not yielded substantive reforms.