This archive report was first published on 9 December 2019.
Mobile Lenders' Data Mining Raises Concerns ¶
Kenyan mobile lenders have found a way to lend to small businesses and individuals, a sector that traditional financial institutions have shied away from. But at what cost?
According to Business Today, mobile lenders use data mining to build credit scoring algorithms, which gauge the creditworthiness of borrowers. This includes harvesting data from borrowers' smartphones, including contact information, and behavioural data.
"There are so many things that we look at like how you list your contacts. So, in the past research has shown us that those who put first name and last name in their phone books are actually correlated with a higher chance of repayment of loans," said Tala East Africa Managing Director Ivan Mbowa in an interview.
Mobile lenders charge interest rates of 12-180% per annum, with some going as high as 300% for microloans. This has raised concerns about the widening wealth inequality gap, as large businesses continue to access credit at much more friendly rates.
Despite the emergence of the Digital Lenders Association of Kenya (DLAK), mobile lenders remain unregulated. The lack of a Data Protection Act and a Data Governing Authority has left consumers vulnerable to unscrupulous undertakings of unregulated FinTechs, including commercialisation of data for advertising, product development, and other uses.
Kenya has attempted to pass three Data Protection Bills in the last six years, but not much traction has been observed subsequently. The Cambridge Analytica scandal has also raised concerns about data safety, as it exposed how millions of user data were mined without consent for political advertising purposes.
