- The rise in popularity of sports betting in Kenya in the era of easy access to app-based mobile loans has led many to presume a correlation between the two.
- A new study by the Institute of Economic Affairs (IEA) however shows that the relationship between the two is not as straightforward.
- The IEA found that the number of borrowers accessing mobile loans for purposes of betting is fairly low, compared to other uses such as business investment, meeting household needs and paying for education.
- This is in spite of digital borrowers being twice as likely to engage in betting compared to their non-digital counterparts.
The rise in popularity of sports betting in Kenya in the era of easy access to app-based mobile loans has led many to presume a correlation between the two.
A new study by the Institute of Economic Affairs (IEA) however shows that the relationship between the two is not as straightforward.
The IEA found that the number of borrowers accessing mobile loans for purposes of betting is fairly low, compared to other uses such as business investment, meeting household needs and paying for education.
This is in spite of digital borrowers being twice as likely to engage in betting compared to their non-digital counterparts.
Mobile lenders, who rely on data analytics when judging whether to lend to a borrower and the amount to lend, are in a good position to track spending habits of the customer once the funds are disbursed.
Thus the lenders who spoke to IEA reported that less than three percent of their borrowers do so to bet, which is backed by the relatively low default rate on mobile loans which would not be so if most of the funds went into a low return venture like betting.
“Borrowing to bet is a smaller subset, where 2.6 percent of Kenyan digital credit borrowers admit to deploying borrowed credit in betting. And 62 percent of digital credit borrowers that admit to deploying borrowed credit in betting were at risk of late-payment or default,” said the IEA.
“Digital lenders are not interested in losing money and are therefore likely to avoid the loss of financial welfare caused by betting.”
Approximately 35 percent of Kenya's adult mobile-owning population has used digital credit with most of the digital borrowers being from rural areas. Seventy percent of all digital loans borrowed fall between Sh500 and Sh7,000.
The default rates for general digital lending is about 12 percent. Mobile app-based lenders have a lower than average default rate among the digital lenders at 9.4 percent, while bank mobile loans have a higher default rate of up to 18 percent.
While the IEA findings show that mobile loans are hardly to blame for the rapid rise in betting, they carry similar consumer risks that ought to be addressed through regulatory intervention.
Mobile lenders and betting firms, IEA says, have access to a large volume of consumer data whose deployment is unregulated, and know-your-customer rules are more relaxed since they rely on data for their lending decisions.
This is in contrast to the banking sector, where there are comprehensive rules for customer identification, record keeping and management and reporting of risks.
“Consumers have become concerned about the application of the data in the hands of their service providers (betting firms and digital loans providers) in addition to the security of this personal information. The breadth of laws covering this level of interaction with clients is not adequate,” says the IEA.
“In recognition of the fact that there is a lending component and surrender of information for financial transaction on digital loans and betting, these policies should be normalised for both sectors.”
Mobil lenders have however sought to downplay the risk they carry, pointing at their relatively lower default risk compared to bank loans.
Betting on its part carries a social risk, seen by many as diverting resources from more useful ventures into wagering on very slim chances of winning.
Punters are not limited on how much they can bet, meaning that in a worst case scenario they do stand the chance of losing all their borrowings. Policy makers are however waking up to the betting problem, with tax measures spelt out in this year’s budget targeting the sector.
Treasury Secretary Henry Rotich has slapped a 10 percent excise duty on all money staked in bets, terming it a push against the negative social effects of betting on young and vulnerable members of society.
This is in addition to the taxes levied on winnings, with the proceeds ideally meant to go towards social programme funding.
Regulating mobile lenders remains a stickier issue though.
The Central Bank of Kenya (CBK) plans to enforce more control on this sub-sector by enhancing the disclosure requirements that they have to make to customers before lending, most notable on the cost of credit.
They will also be required to demonstrate to the borrowers how they would handle complaints and protect their data.