This archive report was first published on 8 July 2020.
Published on July 8, 2020, the Digital Lenders Association of Kenya (DLAK) has been at the forefront of the digital financial revolution in Kenya, setting the pace for many other countries worldwide on how to grow financial inclusion using mobile phones infrastructure.
DLAK says Kenyans should be proud to have one of the most developed mobile wallet ecosystems and a plethora of mobile financial services providers, adding that the emergence and growth of digital lenders has accelerated this development by complementing the role of commercial banks.
According to DLAK spokesperson Kevin Mutiso, the digital lending model has been widely criticized because most people have not understood how lenders operate and the environment in which they operate.
"However, these meaningful gains could be eroded if we put a blind face to the complementary role digital mobile lenders play and start seeing players as bad competitors," Mutiso said.
DLAK argues that the pricing of loans in digital micro-lending is structured in such a way that lenders can only recover all costs after the 5th loan to the same customer.
For instance, a mobile lender will get revenue of Sh 375 for a loan amount of Sh 2,500, but the cost of issuing that credit facility is very costly, leaving a lender with a Sh 1,172 loss.
To reverse this loss and make a profit, one customer must borrow at least five times.
DLAK says that mobile lenders are meant to largely support small traders, start-ups, and households on a short-term basis, while commercial bank loans are used to fund big-ticket projects that are usually of long-term in nature.
"To deeply understand digital lending, just think of other occasional services that you subscribe to like car-hailing or even a hotel stay," Mutiso explained.
He added that digital loans are occasional, convenient, and available when you need them and should be embraced positively as catalysts to financial inclusivity.
