Kenya has more than 500 digital lenders who give micro loans to Kenyans both with and without smartphones.
The rise in mobile loans in Kenya was attributed to the reluctance of commercial banks to lend to individuals and SMEs as they were considered “too risky.”
The coming into force of the interest capping law made it even harder for banks to lend to people as most banks embarked on dealing with low-risk but high return government securities.
Millions of Kenyans who missed out of the commercial banks found solace in mobile lenders who among other things give out cash without any security at all.
There have been concerns that the rise in mobile lending in Kenya has something to do with the increase in betting and gambling companies in Kenya.
According to the Ministry of Interior, the majority of Kenyans, especially the youth, are borrowing from digital lenders to gamble.
The Ministry of Interior estimated that 76 percent of the youth in Kenya are active gamblers and ordered a deep scrutiny of betting companies by the start of July 2019.
The Ministry tied gambling to the increase in depression cases among the Kenyan youth with Kenya ranked the sixth in Africa as the most depressed nation.
According to the Ministry of Interior, Kenyan youth who borrow from digital lenders to gamble, often do not win, and, therefore, end up being blacklisted on the CRB by the lenders.
Stats show that nearly half a million Kenyans are listed on the CRB, 90 percent of them are youth and 80 percent of them are digital borrowers.
But, is there a relationship between gambling and the rise in digital borrowing?
A research done by the Institute of Economic Affairs (IEA) disputes the fact that Kenyans are borrowing to gamble.
Accordingto the institute, less than 2 percent of digital borrowers do so for betting.
“2.6 percent of Kenyan digital borrowers admit to deploying borrowed credit in betting. 62 percent of those who admit deploying borrowed credit in betting are at risk of late-payment or default,” said IEA.
35 percent of Kenya’s adult mobile-owning population are digital borrowers with the majority being from the rural areas. Most Kenyans in rural areas are borrowing digitally for small businesses and day-to-day operations.
70 percent of mobile loans in Kenya lie between 500 and 7,000 shillings. Some mobile lenders, however, are giving as much as 150,000 shillings to their “loyal borrowers.”
Mobile lenders charge one of the highest interest rates on their loans. The highest rate charged by a lender is quoted at 35 percent payable within 7 to 30 days of the acquisition of the loan.
Kenyans, however, have embraced them because of the convenience that comes with them in terms of timeliness in disbursement and the absence of security.
There are calls for the Central Bank of Kenya to regulate mobile lenders and “stop them from exploiting desperate Kenyans.” CBK has termed mobile lenders as “advanced Shylocks” who digitally lend out money and exploit the borrower.
37 percent of Kenya’s digital borrowers are borrowing for businesses while 35 percent are borrowing for their personal day-to-day operations.
20 percent of Kenya’s digital borrowers are borrowing for education while 15 percent are borrowing for airtime.
Those borrowing to pay bills and other household goods are at 10 percent while 7 percent are borrowing for medical emergency.
5 percent of Kenya’s digital borrowers are borrowing just to “try it out”. 4 percent are borrowing to lend to others while the other 4 percent are borrowing for chama contributions.
According to IEA, “Consumers have become concerned about the application of the data in the hands of their service providers (betting firms and digital loans providers) in addition to the security of this personal information. The breadth of laws covering this level of interaction with clients is not adequate.”
According to IEA, there is need to regulate mobile lenders. Kenyans, however, are likely to continue betting despite the government slapping them with 10 percent on every amount stacked.