The National Assembly Committee on Finance and National Planning will investigate credit facilities advanced by telco operators and buy-now-pay-later platforms.
The inquiry is expected to establish whether licensed telecommunications companies have met the existing regulatory and licensing requirements for engaging in financial services and whether the interest charged on the facilities adheres to applicable laws.
“The committee on Finance and National Planning has noted with grave concern allegations brought to its attention that licensed telecommunication companies, through their mobile money platforms and products are engaged in lending using mobile money deposits of non-borrowing customers without requisite licence to engage in financial business,” reads the inquiry notice.
According to a 2021 Digital Credit Market Inquiry Report by the Competition Authority of Kenya (CAK), the bulk of mobile loans is affiliated with Safaricom’s M-Pesa platform.
This implies that the investigation will largely review the platform’s loan products which include M-Shwari, Fuliza, and KCB M-Pesa.
“Fifty four percent of survey respondents in our sample had used digital credit before. Of these, 91 percent of mobile loan users have used the three products associated with M-Pesa while only 38 percent of mobile loan users have ever used any products besides the three,” the CAK survey notes.
From the CAK report, M-Shwari has a market share of 34 percent, followed by Fuliza's 25 percent and KCB M-Pesa's 15 percent.
Only two other lenders registered significant market shares with Tala at 13 percent and Branch at nine percent.
The survey also establishes the high cost of credit by noting that the facilities had a mean annual percentage rate (APR) of 280.5 percent and a median effective APR of 96.5 percent.
“As implied by the difference between the mean and median, the distribution of price of credit is highly right-skewed, meaning we observe a long right tail of high cost of credit. One reason for the highly skewed distribution is the presence of early repayment. The shorter the amount of time credit is taken out, the higher the effective APR,” the survey adds.
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The Finance and National Planning Committee has also observed the constant targeting of telco customers by cyber criminals through SIM-swap fraud.
The committee also notes that various asset finance institutions are currently abusing the buy-now pay-later financing model to exploit young and low-income Kenyans, particularly in the boda boda sector through deceitful and exorbitant hidden fees, interest rates and penalties.
Among the firms that offer buy-now-pay-later services in Kenya include M-Kopa, Lipa Later, Aspira, Faraja, Watu, NCBA Loop, FlexPay and SpotIt. Buy-now pay-later platforms refer to short-term instalment loans that let consumers pay for purchases over time.
