The step by Safaricom and its bank partners to lower the charges of the Fuliza mobile overdraft is the right one.
The allure of easily accessible mobile loans has seen the mostly low-income Kenyans, including young people, saddled in debt.
Punitive interest rates of more than 100 percent annual charges plus fees have led borrowers to be listed on the credit reference bureaus (CRBs). The move by Safaricom, KCB and NCBA to cut Fuliza charges should encourage other digital lenders to review their interest rates.
Apart from charging high-interest rates, consumers say the digital lenders have been infringing on their data privacy by bombarding the contacts they have saved on their mobile phones with calls and messages when they default.
In a country with high unemployment rates, predatory lending should be stopped and lenders regulated to cushion Kenyans from the pain of expensive credit and the indignity that comes with it.
These market practices thrived in an environment where the digital lenders were falling outside the ambit of the CBK. The law demanded that all digital lenders must seek CBK registration by September, prompting some fintechs to sue on grounds that the Act was unconstitutionally and aimed at limiting their operations.
Kenya had more than 500 unregulated microlenders egged on by the rise in need for quick loans and the cutback on bank lending to individuals and small business.
No business can survive interest rates in excess of 100 percent, meet operations costs and make a return for its owners.