Make sure you pay it back. Over the past 10 years mobile-based lending has grown in Kenya. Some estimates put the number of mobile lending platforms at 49 . The industry is largely unregulated but includes major financial players. Banks such as Kenya Commercial Bank, Commercial Bank of Africa, Equity Bank and Coop Bank offer instant mobile loans.
These lending services have been made possible by the ballooning financial technology (fintech) industry.
Since the early 2000s, Kenya has been touted as a centre of technological innovation from which novel financial offerings have emerged. Mobile company Safaricom’s M-Pesa is a well-known example. It is no surprise, therefore, that technology and unregulated lending have developed together so strongly in Kenya.
The speed and ease of access to credit through mobile applications has caused many borrowers to become heavily indebted.
The digital loan services appear to be bridging the gap for Kenyans who don’t have formal bank accounts, or whose incomes are not stable enough to borrow from formal financial institutions. These services have improved access to loans, but there are questions about whether the poor are being abused in the process. A survey released earlier this year showed that formal financial inclusion – access to financial products and services – had increased from 27% of Kenya’s population in 2006 to 83%. M-Pesa was launched in 2007. Mobile money services have benefited many people who would otherwise have remained unbanked. These include the poor, the youth, and women. The next logical step was to make loans available. The first mobile loans were issued in 2012 by Safaricom through M-Pesa.
In 2017, the financial inclusion organization Financial Sector Deepening Kenya reported that the majority of Kenyans access digital credit for business purposes such as investing and paying salaries, and to meet everyday household needs.
Some of their findings are illustrated in the figure below. Unpacking the digital lending story
The implications of these findings are two-fold. Digital credit can help small enterprises to scale and to manage their daily cash flow. It can also help households cope with things like medical emergencies.
Up to 35% of borrowing is for consumption, including household needs, and airtime but not for business or emergency needs
But, as the figure shows, 35% of borrowing is for consumption, including ordinary household needs, airtime and personal or household goods. These are not the business or emergency needs envisaged by many in the investment world as a use […]