Sometimes products rise, and flourish, and spread in a tide that then breaks into a sea wash of scandal, and questions and legislation. And if ever there were a candidate on today’s landscape that will be tomorrow’s ‘bad’, it must be pay-day loans.
As it is, Google searches do not produce the same results for each of us: the engine recognises our connections and interests, and that affects the order of what comes first.
But sat on my own laptop and searching for ‘pay-day loans’, the first four items up are all from British companies. I have family in the UK, so maybe they come up on my search, but not other searches launched in Kenya.
However, the first ad up gives the RAPR. The RAPR is the ‘representative’ annualised percentage rate of interest payable on the loan. It is a product of British legislation, designed to help consumers in understanding the true cost of borrowing. It includes the interest charged, and then the interest on the interest, and the fees on the loan, and all other charges.
So that first ad up declares an RAPR of 1223.6 per cent. For those, which is most of us, who slightly lose the meaning of percentages once they go over 100 per cent, that would mean if we borrowed a month’s salary this January, after a year, we would owe 12 months’ salary to repay it.
In practice, that doesn’t happen in the UK, because consumers are protected by law. No lender is allowed to charge more than 0.8 per cent a day in interest: so the UK, too, for this mega-expensive end of the lending sector, has its own interest rate cap.
That 0.8 per cent maximum adds up to a compound interest of 292 per cent a year. So, in that legal environment, the one month borrowed would be about three months to repay in a year.
But the UK has a second piece of legislation in place on payday loans. No lender can charge back in repayments more than twice what it lent in the first place.
Kenya does not have such limits. Which makes pay-day loans, which look like such a sweet relief when times are tight, a potential skid trap into hopeless and irrecoverable levels of debt.
As it is, pay-day loans have their merits. My own company is currently living through the worst ‘late-payment’ experience it has had since 2010, with a single client seemingly unable to pay a long overdue bill for works, and creating now cashflow havoc for our profitable venture.
In the January that one client has delivered for us, many of my own staff, I am sure, took one-off, never seen before, and never to be repeated, ‘pay-day loans, as we scrambled to cater for a hole that had become mission-critical by the beginning of this month.
We began collecting normal January payments and caught up at least until early February. But for the staff affected, those pay day loans were surely an amazing and timely insulation.
Yet, one of my staff told me this week of a friend of hers is now so deep into rolling pay-day loans that each month’s salary repays the last loan and then she takes a new one.
There is no barrage of rules in Kenya on advertising the APR that borrowers are truly paying on those short-term borrowings.
But that one friend will surely be having to earn a salary plus for her spending this year - until she can pull herself just the one month back on spending to end her life on pay-day loans. And she is not alone.
In Kenya, we are gaining a class of staff and workers whose salaries now pay for their rent, and school fees, and food, and travel, and a raft of largely unadvertised costs in servicing a mounting pay-day loan dependency.
As if that heralded well for prosperity and future success. So, think about a pay day loan for occasional emergencies.
But get hooked on them, and you probably just halved, or worse, your own earnings: which is a very serious and sometimes insoluble price to pay for getting ahead on daily spending. Treat with care.