This archive report was first published on 29 August 2019.
Kenya's digital lending landscape has taken a drastic turn since its introduction in November 2012 through M-shwari, a collaboration between Commercial Bank of Africa (CBA) and Safaricom.
Initially designed to help people cope with unexpected expenses, digital lending has become a double-edged sword, with many platforms charging exorbitant interest rates.
For instance, M-shwari charges a monthly interest rate of 7.5%, equivalent to 90% per annum, while Branch charges 14% per month, translating to 168% per annum.
These rates are significantly higher than the average bank interest rates of approximately 13% per annum.
Moreover, the lack of regulation in the mobile lending industry has led to a breach of customers' privacy, with lending applications collecting personal data without consent.
As a result, close to 2.7 million Kenyans have been listed by Credit Reference Bureaus (CRBs) for defaulting on loans as little as Kshs 200.
The Central Bank of Kenya's failure to regulate mobile lenders has created a grey area, making it difficult to distinguish between what is wrong and what is not.
Ultimately, the need for regulation cannot be overstated, as it is the only way to protect consumers from being entangled in debt.
