Questions for digital lenders on financial health of borrowers


What you need to know:

  • Mobile money is ubiquitous form of payments while the proliferation of mobile loan apps has bridged the financial inclusion gap, albeit with some inherent challenges.
  • Data from the Central Bank of Kenya indicates that the value of mobile money transactions rose by about a third to Sh6.2 trillion in 2021.
  • Financial health is the extent to which a person or family can manage their current financial obligations and be reasonably confident about their future.

Kenya has in the past decade experienced growth in digital financial services, reshaping how people, for example, order meals, pay insurance premiums, and buy electricity units.

Covid-19 pandemic turbocharged the e-commerce sector.

Mobile money is ubiquitous form of payments while the proliferation of mobile loan apps has bridged the financial inclusion gap, albeit with some inherent challenges.

Data from the Central Bank of Kenya indicates that the value of mobile money transactions rose by about a third to Sh6.2 trillion in 2021.

Further, the 2019 FinAccess Survey says 79 percent of adult Kenyans using financial services have mobile money accounts, with a majority operating multiple accounts. These access points complement the traditional sources of finance and demonstrate the power and role of digital technologies in supporting economic growth.

The FinAccess Survey 2021 shows financial inclusion expanded to 84 percent in 2021 from 83 percent in 2019. Financial inclusion in the 2006 baseline survey stood at 27 percent.

Worryingly, the financial health of the adult population deteriorated by five percentage points in the two years under review to 17 percent. This is perhaps attributable to the fact that a majority of the digital loans are for consumption and that many borrowers take out multiple loans that have high interest rates and penalties. The result is that thousands of borrowers default.

Even as all stakeholders, including regulators, actively support financial inclusion, we should ask ourselves the role digital lenders play in enhancing the financial health of Kenyans

Financial health is the extent to which a person or family can manage their current financial obligations and be reasonably confident about their future. This is usually not the case for the majority of digital loanees.

The adoption of services such as digital finance is associated with consumer risks such as over-indebtedness which could be attributed to the high fees which vary between 7.5 percent and 10 percent per month. Other concerns in digital finance include data privacy breaches, hidden charges and lack of customer redress plans.

At the heart of financial health is, therefore, financial consumer protection. In 2016, the Competition Authority of Kenya (CAK) investigated the level of transparency and disclosure by Digital Financial Services providers.

It was established they were not disclosing fees and charges for transactions through SIM toolkits, USSD and mobile applications.

The CAK ordered them to remedy these infractions, resulting in an improvement of consumer awareness level regarding applicable fees.

Digital lenders should not wait for regulatory intervention to do right. They should be proactive.

It is therefore timely that this year’s World Consumer Rights Day (WCRD) marked every March 15, is themed ‘Fair Digital Finance’.

The WCRD raises awareness about consumer rights and needs, promoting and protecting their basic rights, and protesting against conduct that undermines those rights.

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