This archive report was first published on 13 September 2019.
Published on September 13, 2019, a survey by the Kenya Bankers Association (KBA) has revealed the harsh reality of digital loans in Kenya. The survey analyzed the costs of various digital loans and found that purchase of electricity on credit from Kenya Power is the most expensive type of loan.
Okao Stima, a product offered by Safaricom on its M-Pesa platform, charges a staggering 43.4 per cent monthly interest. This is compounded by a 10 per cent levy on the value of the tokens purchased by the customer on credit, which is repayable within one week.
The KBA report titled Digital Credit, Financial Literacy and Household Indebtedness found that borrowers who accessed the digital loans are hardly aware of the costs, while the lenders are doing little to educate them. The report also highlighted that lenders are exploiting 'insider information' about the borrowers, including their ability to pay.
Researchers in the study noted that the high interest rates applied by the various lenders reduce household incomes, while borrowers are likely to be pushed into distress. The survey found that most borrowers sought credit for capital for their small businesses, before meeting their daily living costs.
Legislators in Parliament are now considering proposals to regulate digital lenders in the same manner as banks. The proposals include capping interest rates on digital lenders.
