Mobile loans probe timely - Daily Nation

Digital lending is a new service whose significance is evident in the proliferation of mobile loan apps. Some 20 genuine organisations give quick emergency loans. The ease with which the loans are processed is a big attraction, especially for young people, who do not have the collateral to get loans from banks and other traditional lending institutions.

The other advantage is the convenience borrowers enjoy, as all they need is their phone.

The digital loans are a godsend for Kenyans, who cannot borrow from formal financial institutions. However, questions about the abuse of borrowers are mounting. The lenders levy higher charges for the short-term loans as a mitigation against losses.

For those operated by mobile phone providers, it is easier as borrowers must use their phones and any money that lands into their accounts is debited to service loans. The lenders are also being helped by the increasing fear of being listed by the credit reference bureaus.

However, some will apply for a loan and change their number or shift to a new mobile service provider.

Statistics show that 19 million Kenyans are clients, with 40 per cent going to between six and 10 of the lenders.

More than 380,000 have defaulted on their loans. It is a default rate of two per cent of the total accounts, according to the Credit Reference Bureau (CRB) Kenya. Most of the borrowing is for consumption and not investment.

It is, therefore, hardly surprising that the digital lenders are now coming under scrutiny from Parliament over allegations of exploitation.

An MP wants the lenders investigated, blaming them for contributing to increasing suicides, divorce and listing of loan defaulters with CRBs.

It is high time the business was streamlined and the rogue lenders reined in.