Digital Credit is Resulting in Overborrowing in Kenya, Recent Report Shows

There are over 50 mobile lending services in Kenya
There are over 50 mobile lending services in Kenya

Mobile money in East Africa has brought about a new wave of financial inclusion. With just a mobile phone, many people  now have the equivalent of a basic bank account.

While this is definitely good news, the irony is financial inclusion is also resulting in financial exclusion. Due to late repayments and defaulting, the credit worthiness of many lenders is getting damaged. As a result, they get blacklisted by credit bureaus which locks them out from accessing future credit.

According to a report published on The Economist, the number of Kenyans blacklisted by the country’s credit bureaus, and so unable to borrow, has risen to more than 500,000, up from 150,000 three years ago.


The Rise of Mobile Credit is to Blame

According to the report, the proliferation of mobile credit has enabled easy access to loans which makes easy to access credit ranging from a few dollars to hundreds of dollars. When borrowers are unable to pay, this eventually hurts their borrowing ability in future.

The Branch Visa Partnership comes at a time when mobile loan apps in Kenya are very popular

Below are some of the stats from the report:

% of those who have taken digital loans:

  • 35% in Kenya
  • 21% in Tanzania

% of Late Payments

  • 47% in Kenya
  • 56% in Tanzania

% of Defaulters

  • 12% in Kenya
  • 31% in Tanzania

The report has also revealed that less than 40% said they were borrowing for business needs.

The appeal of new digital lenders like Branch, Tala, and other mobile credit services in Kenya that do not require any paperwork or collateral is deceptive to most borrowers. As a result, most are even willing to borrow and gamble with the borrowed money unaware of the consequences if they default.

There has been a lot of talk recently around regulating these new digital credit services. Some of these services have even expressed a willingness to be regulated.

Speaking about the problem during a recent event, Hilda Moraa, CEO, Pezesha, one of the more successful credit services in Kenya, said:

“It is important for us to come in and educate lenders on understanding who is a credit worthy borrower. . . . We need to help borrowers think about the long time and only borrow credit for the right purpose and only when they need it.”