#DebtOfShame: How dishonest digital lenders are using unorthodox tactics to collect their loans
Imagine this: someone puts you as a guarantor for their mobile loan, then defaults. The debt collector then decides he’s going to harass you on the phone, calling you with multiple numbers until you pay.
This is the experience many Kenyans have had since the proliferation of mobile lending apps almost 10 years ago, and for a pastor in Nairobi, his experience lasted almost three days.
While mobile apps have provided credit options to consumers at the bottom of the financial pyramid, the shame of debt that comes with it casts a shadow over the dream of financial inclusion.
Pastor John Kimani Ngure recently found himself grappling with a relentless debt collector eager to collect a loan taken out by one of his devotees.
“Nilipigiwa simu na mtu akajitambulisha kwamba anatoka mojawapo ya hizi kampuni na akaniambia kuna mshirika amechukua loan na amekosa kulipa wakati waliyokubaliana,” said Pastor Kimani.
“Nikajaribu kusema mimi sina ability ya kuitisha washirika pesa zao, akaniambia si kwamba nataka ama sitaki, itabidi nimfuatilie the sivyo kuna consequences.”
For three days, Pastor Kimani found himself unable to use his phone because he was constantly called upon by debt collectors. Out of frustration, his wife tried to talk to them and their responses became vulgar.
These phone conversations are a classic example of debt shame, which refers to the use of a borrower’s social circles to shame them and make them pay off a loan.
“Debt humiliation is a practice that started in China, because in this market, the social construction is that if Waihiga has taken out a loan and we know that he has defaulted, shame for him and his family is quite large. In Kenya, culturally, we now know that this is not something acceptable. We have two rogue actors who are very well known for perpetrating this bad behavior, we tried to contact them and they refused to come to the table to talk, ”said David Mutiso, president of the Digital Lenders Association of Kenya (DLAK ).
The act has become so prevalent that recently several mobile lenders have distanced themselves from the act.
“Niliwaambia ntarecord nipeleke kwa media na CID wakaniambia tafadhali record. When we get to this point, ni mahali pa hatari sasa, ”said Pastor Kimani.
“The pastor did not agree to be called by the lender, did not agree to be the guarantor of the loan, so legally they did not have the right to call him,” Mutiso said.
A 2019 FSD Kenya audit report found 110 digital credit providers offering loans between Ksh1,000 and Ksh16,000 on the first attempt.
While some of the lenders have sought to comply with applicable law, others engage in questionable and fraudulent practices, outright breaking existing laws.
Many mobile lending platforms are private, and some are owned by outsiders and are not subject to public disclosure laws.
Since most foreign lenders are funded by investors, they use the first loan to assess an individual’s reliability before offering new credit.
But to really understand how we got here, you have to go back at least 20 years to the rise of the internet, cellphones and mobile money.
At that time, getting a loan from a bank was usually a daunting task, as it involved going to the nearest bank branch, providing all the necessary documents including an asset as collateral, submitting your request and, after all, the chances of your request. to be rejected was very high.
But in Kenya today, a loan is literally five minutes with the click of a button and banks have now been replaced by hundreds of apps selling loans.
“Even the poorest can actually borrow, there are women who borrow very early in the morning and sell their goods and repay the same day. They pay almost no interest rate, which means they get the money to make a living, ”explains Bitange Ndemo, professor of entrepreneurship.
But this new form of credit comes with rather punitive terms, and easy access to loans could lead to a vicious cycle of borrowing from Paul to pay Peter.
While some of the methods employed by a few debt collectors are clearly illegal, the reliance on mobile loans before and after the COVID-19 hit in the country is undeniable. Kenyans borrowed Ksh 1.2 billion per day in 2020 from M-Shwari and Fuliza alone.
In countries like Benin, Rwanda, Senegal and Tanzania, microfinance through mobile loans has become the only lifeline for low-income people who are largely in the informal sectors and some traders in Kenya are feeling the same thing.
But while Kenyans have quickly embraced mobile lending, few understand the interest implications of these quick fixes.
The average bank loan will bear interest of 12-14% per annum, but in a survey of several mobile loan providers, interest rates ranged between 75% and 395% per annum.
In addition, some of the lenders have been accused of predatory lending practices, with a China-based lender accused of requiring repayment of the loan within 30 days while Google, the host of these apps, demands that borrowers have 60 days to refund.
“Last year, we spoke out very strongly against some rogue players in our industry. In fact, we called them out publicly and brought them to the attention of various stakeholders, including the Central Bank and the Treasury, ”added Mutiso.
So how can Kenya fully reap the benefits of technology-driven financial inclusion while keeping unethical loan providers under control? Some say regulation is the way to go and after a long wait Kenya has passed comprehensive data protection legislation – the Data Protection Act of 2019, which was assented to by the President on November 8, 2019. .
The law has implemented comprehensive laws that protect the personal information of individuals.
The main concerns include the fact that most consumers often don’t know what data is being used or how their data is being shared, nor can they easily control it.
Research by FSD Kenya suggests that two in three Kenyans face the stress of indebtedness, a situation in which they are forced to skip meals in order to repay their loans.
“Those who think they can’t survive in a watched area, that’s fine, they can go. I think the expectation that just because someone lends using a cell phone, he can do whatever he wants … maybe he can go to the Old West, that’s where he not belong in an appropriate economy, ”said the governor of the CBK, Patrick Njoroge presseur.
But not everyone fully agrees with the governor on regulation as a silver bullet to the challenges facing the industry.
“The problem is with those who borrow to make bets and they default, then their names got entered into the Credit Reference Bureau (CRB) and that’s how the Central Bank stepped in to say no,” Ndemo said.
“So we’re complicating things as we get close to helping the people at the bottom of the pyramid benefit from these innovations. I beg the government to study this new legislation which is being pushed by the Treasury before making decisions that will have an impact on innovation in this country. “
In the meantime, what can someone harassed by these debt collectors do to complain about a data privacy breach?
“Write an official letter to two offices to request measures and the application of the data protection law and expedited procedure of the amendment bill CBK 2021. We have the office of the data protection commissioner and let us also write to the parliamentary finance and planning committee while they examine the bill, ”said DLAK boss Mr Mutiso.
Experts predict that in the near future, local lenders may soon offer services like mortgages on your phone, but they admit that with increasing financial inclusiveness, greed and simple bad manners will continue to cloud its future, and technology alone will not be able to keep sanity in this booming industry.
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