Digital lending yoking more Kenyans into debt as analyst calls for regulation to protect borrowers from predatory lenders

The proportion of Kenya’s population with access to formal financial services hit 83 percent in 2018.  Many borrowers, including from digital lending platforms are fast reporting the downsides of quick and easily accessible money. Borrowers are finding themselves locked in debt or losses due to lack of financial literacy on key aspects such as cost of borrowing. While it is a legitimate concern that oversight could stifle innovative fintech digital lending, the risks from leaving this industry unregulated are too significant to ignore.

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Article
16 May 2019

Alarm as easy digital loans yoke more Kenyans to debt

Author: Patrick Alushula, Business Daily (Kenya)

"Alarm as easy digital loans yoke more Kenyans to debt"

If truly what comes easy won’t last, as the old saying goes, then most Kenyans may be having second thoughts on the country’s rapidly rising access to financial services driven by mobile technology. Although the proportion of Kenya’s population with access to formal financial services hit 83 percent in 2018, according to a survey part-conducted by the Central Bank of Kenya (CBK) and the National Treasury, many borrowers are fast reporting the downsides of quick and easily accessible money. “Could this financial inclusion be driven by some kind of laxity that doesn’t quite check on regulations or could we be talking of unhealthy financial inclusion that cannot drive growth?” Joy Kiiru, a lecturer at the University of Nairobi’s School of Economics posed during the launch of the 2019 Financial Access (FinAccess) Household survey report.

Borrowers are finding themselves locked in debt or losses due to lack of financial literacy on key aspects such as cost of borrowing. There is also lack of consumer protection which leaves many vulnerable to fraud, unfair product pricing among other malpractices. “The survey results showed that the proportion of respondents relying on their own knowledge was 39.6 percent compared to 34.7 percent who relied on family and friends for financial advice” the FinAccess survey report said.

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Article
16 May 2019

Regulate digital loans to protect consumers from preying fintechs, urges analyst

Author: Angela Mutungi, Business Daily (Kenya)

"Regulate digital loans to protect consumers from preying fintechs"

Regulating the digital lending industry makes consumer and macroprudential sense. Over-indebted Kenyans juggling and struggling to repay multiple digital lenders is the grim reality. But regulatory intervention cannot and should not be driven by irresponsible or poor borrowing choices. However, if unfair and predatory digital lending practices have significantly contributed to over-indebtedness of Kenyans, there is a strong case for regulation. Kenyans must always have recourse to a competent regulatory authority that can uphold and enforce responsible lending and consumer financial protection. The absence of this in the digital lending industry continues to expose Kenyans to unethical behaviour...

Regulation will ensure disclosure of all risks facing these digital lenders so that their viability and that of their operations can be accurately determined and mitigating measures put in place. It is the purview of Kenyan regulators to proactively monitor for risks to the financial system and stress-test its ability to withstand duress. There cannot be any blind-spots that cloud or impede their view of the vulnerabilities and risks to the Kenyan financial system. Or that could place contingent liability demands upon the central bank’s role as lender of last resort. Additionally, if the Kenyan financial system is potentially exposed to financial market contagion through foreign digital lenders, this risk should not be downplayed. Oversight of the digital lending industry will ultimately support the macroprudential approach in place to the Kenyan financial system. While it is a legitimate concern that oversight could stifle innovative fintech digital lending, the risks from leaving this industry unregulated are too significant to ignore. Never mind that the industry itself has so far shown little interest in self-regulation. The ramifications of consumer over-indebtedness are severe and timely action is required.

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