Mobile money-lenders bring Kenyans relief … and crushing debt

Almost one-fifth of mobile-banking borrowers in Kenya defaulted in 2018

Picture: SUPPLIED Nairobi — With no bank account to his name, J Barasa still found a lender to finance his passion for gambling on soccer. All it took was a few clicks on his phone and his willingness to pay annual interest of more than 150%.

The Nairobi taxi driver represents the new frontier in the market for mobile money, the universe where banking is done over the phone. Its proliferation is making it easier than ever to borrow, marrying convenience to need and creating a level of stress that only crushing debt can produce.

In Kenya, Africa’s financial-technology pioneer, there are now more people keeping money on their phones than in banks. Almost one-fifth of mobile-banking borrowers there defaulted in 2018 — like Barasa, who has failed to pay three separate loans. He’s hoping friends and family will help to repay 22,000 shillings ($213).

“Mobile loans are easy to get and addictive,” said Barasa, who asked that his given name not be published. “I need a fresh start but can’t see it.”

Microlending was once nothing but a good news story. Muhammad Yunus won the Nobel Peace Prize in 2006 — a year before the introduction of the iPhone — for pioneering the concept in Bangladesh: loans of as little as $10 to mostly women entrepreneurs too poor to tap banks. Along the way, Kenya established a goal of providing universal access to financial services, a promise made easier amid the smartphone revolution.

Sub-Saharan Africa has proven the most fertile ground for microlending through mobile devices. In 2018, there were 395.7-million mobile-money accounts in the region, or almost half of the world total; the $26.8bn handled represents two-thirds of the total transactions, according to GSMA, which represents 750 mobile operators around the world.

Asia is the closest competitor, with such transactions equivalent to about 7% of its economy compared with about 10% in sub-Saharan Africa, according to World Bank data. In the rest of the world, it’s less than 2%.

In Kenya, with more than 50 mobile lenders offering loans ranging from $10 to $400, officials are trying to get their arms around a business that took off after a 2016 law capping interest rates to reduce borrowing costs. Banks instead invested more in government debt and tightened their standards, sending small unsecured borrowers to mobile lenders.

Mobile-money operators “shouldn’t be lending out money in […]

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