“Uninstall the app. Change your phone number. Deny the app's permission on your phone. Simply ignore the calls or block them. Don’t believe the threats because they don’t know your physical location.
“Wait for the interest waiver period and only pay the amount borrowed. Find apps that will loan you even if you are blacklisted by the Credit Reference Bureau (CRB).”
These are just a few avoidance tactics shared among Kenyan borrowers on social media, who face high interest rates and aggressive mobile loan recovery practices.
For these borrowers, the cycle of debt often starts when they are unable to make repayments, and then they seek additional loans to cover existing debts, leading to a chaotic juggling act.
Annstella Mumbi, general manager at Tala, a digital credit provider says, the current loan default rate is averaging 93 percent, and they have not been approving as many customers as they did in the period after they launched 10 years ago.
Kenya's mobile loan app market is booming, with 58 digital credit providers licensed by the Central Bank of Kenya, out of the more than 550 applicants seeking the regulator's nod.
Shockingly, some Kenyans borrow from one to repay the other.
Financial experts argue these loans are frequently used for urgent needs and discretionary spending, driven by the ease of obtaining cash via mobile apps compared to traditional banks and Saccos.
However, Audrey Oluyole, a Nairobi-based counselling psychologist says “some people compulsively borrow money due to immediate gratification.
“They want to satisfy a need that is not important such as buying a shoe or an overpriced meal. Because they want satisfaction immediately, they take loans.”
Then there are the optimistic, who always believe that ‘I will get more money soon, so I’ll be able to repay this loan. Let me take the loan because I am expecting a big amount soon or I will get a pay raise soon.’
“Then there is also social pressure- seeking to fit in a certain lifestyle,” says Ms Oluyole.
There is another category of borrowers who always think they do not have enough money, so they keep borrowing.
“Most of these people come from a background of lack, so they are always in a survival mode, they borrow to feel secure even if it means going into debt,” Ms Oluyole adds.
Four apps
Daudi, 34, a furniture maker on Nairobi’s Jogoo Road, has loans on four apps. He says he used some of the money to pay for emergencies, but part of it was stolen when he thought a gamble would pay off.
“I currently have a running debt of about Sh10,000. I only take loans when I am financially stuck. The only problem is the lenders don't know how to recover the loans.
“They speak very badly. For some of the loans, I paid half and when the lender began harassing me, saying they would call people in my phone book including my parents- and I am the one who took the loan, I decided I would ignore the debt,” he says.
Daudi hopes to find one financier with better loan terms and customer relationships, take a loan and pay off the four other mobile app lenders.
“They give you little money, but the insults are really big. These people don’t sleep! They harass you day and night with phone calls. I was always angry.”
Mawa, 31, plunged into the debt hole in 2020. He owed Sh70,000 to five mobile loan apps. He says he took the loans when he was unemployed. When he defaulted, the loan recovery agents were not kind to him. He kept receiving SMSs, some threatening him and that they would contact his parents.
Luckily, he got a job and started paying off the debt. He requested some of his creditors to restructure the repayment periods.
“Those who harassed me have to wait until I’m done repaying the lenders who agreed to a repayment plan,” he says, adding, “Those yet to borrow loans from mobile apps, don’t dare!”
Jubilee Life Insurance Limited Chief Executive Officer Asman Mugambi Ibrahim poses for a picture after the interview on August 1, 2024.
Photo credit: Francis Nderitu | Nation Media Group
Ms Oluyole says the debts affect not only someone’s social life but also mental health.
“Most people who are in debt have low self-esteem because they don’t trust themselves to work with a budget. They wake up and go to sleep thinking of the debts. Imagine someone calling you “a thief who took their money and they are not returning it.” Then threatens to embarrass you before your boss or spouse. This causes anxiety and such people find unhealthy coping mechanisms ranging from drinking, smoking, shopping and gambling,” says Ms Oluyole.
Ms Mumbi of Tala, says she disapproves of such tactics of loan recovery employed by agents.
The solution
But can one eventually break free from the debt shackles? According to Jackline Mwangi, a financial advisor, the first thing a borrower must do to end the debt cycle is to stop taking on more loans to repay others.
“Stop digging in. Stop taking up more loans. Write down all those debts you have the interest rates for each and the stress that each loan gives you because every debt has its level of stress.
Then, have a plan of paying them off and don’t mind missing out because, at times, people want to buy or do things so that other people can notice. But truthfully, people don’t notice.
It’s you, the person who is in debt, the one who notices that other people are noticing but other people will not notice. So stop digging in,” says Ms Mwangi.
As an alternative to taking up short-term, high-interest loans, Ms Mwangi advises employed borrowers to leverage any financial relationships their employers/company has with a financier to get loans with better terms.
For those who are unemployed, she advises that they should define what their emergencies, needs and wants are; and then start up corresponding savings plans that earn interest and are easy for them to liquidate when the need arises.
“To build a sustainable budget, first have a source of income. From this income, define your expenses and write them down. Record your daily expenses and input your different types of income.
“You will know how you spend your money and where to cut down. Adopt the 50/30/20 simple financial rule. 50 percent can go towards immediate needs, 30 percent can go towards your wants- things you can live without such as coffee dates and 20 percent you can save for emergencies,” says Ms Mwangi.
For those with unstable incomes, she advises them to calculate their fixed bills such as rent and utilities and then find a house they can manage to pay even in their instability.
For shopping, she advises taking advantage of discounts offered in retail stores.
“Find smart ways to ensure that unstable income can sustain you until the next time your income comes in,” says Ms Mwangi.
Finally, Ms Oluyole advises borrowers to seek support from trusted friends or family to manage the stress and isolation associated with debt.
“Breaking the cycle requires a lot of discipline and stop thinking that whatever you have is not enough.”
