At one point, Kenya was referred to as a gambling nation after tens of betting firms swept across the country taking over both the young and the old by storm. It is still a gambling nation with the majority of the addicts being the youth.
At another point, Kenya was referred to as a ‘borrowing nation’ though the phrase has often been used to refer to the public debt that now is heading to the 5.6 trillion marks. However, what many do not know is that the real borrowing is happening on the ground through the numerous mobile loan apps.
There are more than 42 mobile loan apps in Kenya and that is both a blessing and a curse to thousands of Kenyans, with the majority being the young and unemployed youth. Stats show that more than 500,000 Kenyans are listed on the CRB, 80 percent of them being the youth who either delayed or failed to pay back their mobile loans.
Many Kenyans are not able to access traditional loans from commercial banks given the long and tiring processes that are involved. All banks often require the borrower to offer them security and have a sound financial record as an assurance that they will be able to service the loan if granted. The time involved before getting a loan from a commercial bank has also acted as a catalyst to drive thousands away.
The coming into effect of the interest rate capping law just made matters worse. Most banks refrained from lending to Small Medium Enterprises (SMEs) as well as individuals because they were considered risky. The only savior that came at the time of need is the mobile loan apps that are now thriving in Kenya.
The mobile loan app owners have taken the advantage to charge exorbitant interest rates on the loans they offer. The highest interest rate charged by a mobile loan app in Kenya is 35 percent with the loan taken payable within 30 days. This means that if one takes a loan of 1,000 shillings, after 30 days, he or she will have to pay back 1,350 shillings.
The duration of the loans varies from one app to another. There are some that charge the interest rate after every two weeks and some after three weeks. Some charge an interest rate on a daily basis and given that the loans are issued instantly without any security, a majority of Kenyans have become victims, destroying their credit history with every loan they delay or fail to pay.
The main reason why these mobile loan apps are so daring in levying high-interest rates is that they are not regulated. Players in the financial sector are calling for the regulation of mobile loan apps to cushion the consumer. The Chief Executive Officer and Equity Bank Group Dr. James Mwangi was the latest from the banking sector who called for the regulation of the mobile loan apps before it is too late.