HomeOpinionCeteris Paribus: Considerations as Kenya regulates digital lending

Ceteris Paribus: Considerations as Kenya regulates digital lending

THE past five years have seen numerous mobile lending mobile applications launched on the continent of Africa, leveraging on the rising demand for fast loans.

However, these start-ups have been operating in what appears to be an unregulated setup and the Kenyan government is among the first to enforce some degree of regulation to digital lending.

Kenya’s recent Digital Credit Providers Regulations Act of 2022 stipulates that:

“A person shall not establish or carry out digital credit business in Kenya or otherwise hold himself out as carrying out digital credit business in Kenya unless that person is licensed by the Bank in accordance with these Regulations, or is a person whose digital credit business is regulated under any other written law….a person who wishes to carry out digital credit business in Kenya shall apply to the Bank for a licence.”

The coming in of the regulation to the matrix is meant to curtail some downside developments that came with the mushrooming digital lending platforms.

‘TechCrunch’ noted that the lack of regulation meant that customer privacy was never guaranteed as the digital lenders arbitrarily shared user data with third parties.

Furthermore, customers defaulting on loan repayments faced unending reminder calls from debt collectors, who also used shaming tactics like calling friends and family to compel defaulters to pay.

While the loan apps offer collateral-free loans, they, however, came highly-priced, with some annualised interest rates going up as high as 876%, necessitating some degree of oversight by regulators.

A recent report by ‘Markets and Markets’ indicates that the global Digital Lending Market is expected to balloon from US$10,7 billion in 2021 to US$20,5 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 13,8% during the forecast period.

This spells enormous growth opportunities for the trade not just globally but also for Africa.

The projection is premised on the explosive adoption of smartphones and growth in digitalisation, the growing need for enhanced customer experience, greater visibility and options for borrowers and lenders, growing demand for digital lending platforms among MSMEs, and a surge in digital lending in response the pandemic.

The rapid emergence of various financial entities likefintechs, neo and challenger banks as well as the widespread adoption of mobile money across the continent have proved vital aids at bridging the financial inclusion gap in the third world, with resounding progress made on the continent of Africa.

The trend is likely to be sustained with many start-ups competing to service Africa’s unbanked population (of about 40%). Notably, Venture Capital Funding for African start-ups in 2021 grew 2,5 times to US$5 billion from the 2020 outturn, with fintechs dominating the matrix, gobbling up 62% of the outturn, Briter Bridges’ Africa Investment Report 2021 report highlighted.

Africa still depends on legacy telecom infrastructure incompetent of delivering low latency and high-capacity connectivity with poor internet speeds often affecting the customer experience.

Since all the services offered by digital lending platforms are online, slow connection hasresulted in reduced quality of service.

The lack of high-speed internet has made it very difficult to implement digitallending solutions. Not to be outwitted, the organisations on the continent rely more on offline lending options in the course of service delivery.

Beijing cracked down on the P2P industry in 2018, suspending the issuance of licenses for new lenders. More recently it has also limped homegrown fintech players such as Ant Group, a dominant force in consumer lending in the mainland.

While a certain degree of regulation may be necessary in digital lending, for Africa’s highly unbanked population, the degree of regulation may need to be mild to allow for the growth of SMEs on the Continent.

  • Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.net

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