Must digital lenders use crude means to pursue defaulters?

 

Many of your customers are disappointed by the unorthodox means your members use to pursue defaulters. These include incessant calls, threats, intimidation and reaching out to their relatives.  Is it possible for them to explore other means to achieve their goals? Komen Moris, Eldoret

Unfortunately, as with any nascent sector across the world, there is a clear dichotomy of two sets of players — the responsible ones who are members of our voluntary association, the Digital Lenders Association of Kenya (DLAK), and a few rogue ones responsible for the malfeasance in the sector.

Our bona fide members are responsibly working to meet the financial needs of the millions of individuals and SMEs. We launched DLAK in March 2019, developed and signed a binding code of conduct (CoC) in June 2019 to address these concerns.

The CoC sets high, globally-benchmarked ethical standards of best-practices across the entire business, protects fundamental consumer rights, provides for dispute resolution, proper debt collection practices and an accountability mechanism.

This is our vision of a responsible, self-regulating industry. From an initial membership of 12, we now have grown to 20, and have another 30 applications pending our very rigorous vetting process. We have also been pro-actively engaging key actors like the Central Bank of Kenya (CBK), Competition Authority of Kenya (CAK), the National Treasury, Parliament, consumer lobby groups, consumers themselves and the World Bank Group, among others, in putting in place a self-regulating model under the CBK, to organically scale the sector as an important player in financial services.

President Uhuru Kenyatta last year signed the data protection law. Going by the provisions of this law, it is incumbent upon your members to strictly safeguard personal information of your clients, including defaulters, without sharing it publicly and unnecessarily in a manner to expose them to ridicule and embarrassment.   How do you address the matter? Dan Murugu, Nakuru

The Data Protection Act (DPA) 2019 is a progressive law and as DLAK, we welcome it. We shall comply with the dictates of the Act. We shall at all times protect the data and privacy of our clients. We are happy to note that tangible progress is being made in implementing the Act, as we now have a data commissioner in office, and the ICT ministry has just constituted an 11-member taskforce to draft the DPA regulations within the next six months.

The Central Bank of Kenya (CBK) promised recently to tighten regulations for the sector. Are your members going to survive it? Githuku Mungai, Nairobi

The Central Bank of Kenya is one of the most progressive regulatory institutions we have in Kenya. They demonstrated this by approving M-Pesa many years before any other regulator had the guts to even consider anything like it, and the mobile money success story in Kenya is testament to this. In addition to that, Dr Patrick Njoroge, the CBK governor, sits as a member of the Digital Finance Task Force at the United Nations.

We are confident that the regulation will be fair, take into consideration the need for a light-touch regulatory approach similar to the one on mobile money, given the stage at which our industry is in, remain true to the five pillars of enhancing innovation, trust, security and choice, as long as we can demonstrate that the customer gains from the value exchange.

There was talk about Google not allowing apps on its platform that don’t give loans that last at least 60 days. What is your association’s stand on this matter? Sam Ouko

Google softened their stance in Kenya because of consultations. Google was right in creating a set of rules to protect their customers. Our main concern was that they did not consult us. We deemed this as being unfair, because bad actors were ruining the good work we were doing. Google is a friendly partner that shares the same ideas about customer protection as DLAK.

Can you assure your customers that you don’t sell their data? Sometimes borrowing from an app sees someone receive curious marketing SMSes. Sam Ouko

DLAK members do not sell your data. The Data Protection Act 2019 is very clear about how to handle a customers’ data. The challenge is that the Act is being operationalised and will be enforceable this year. The culprits of these kinds of illegal acts shall be dealt with by the data commissioner’s office. DLAK shall support these efforts wholeheartedly.

Do you think your products are encouraging some Kenyans to live beyond their means?  Cliff Ogake

Over-indebtedness is a serious problem plaguing our industry. I would like to note that lenders do not make money when their customers are over-indebted because it means that they default what leads to loss of capital on our part.

Businesspeople use our loans as working capital, emergency cash flow and capital expenditure to improve their businesses. This means that our money goes to create value directly into the economy. Before us, it was impossible to profitably give a mama mboga Sh2,500.

Interest rates and other charges vary a lot across the various digital lenders. Why can’t we have a standardised rate? Solomon Babu

Kenya is a free market driven by the laws of demand and supply. By forcing pricing caps on lenders, innovation, and pursuit of new market segments will eventually die off. This is not a preferred option.

We expect that the CBK regulations will insist that the lenders use risk-based pricing models. This will ensure that market actors have to clearly demonstrate how they derived the price they charge customers. This will make the market more competitive in the long-term and as a result create significant downward pressure on the price.

Banks represent over 90 per cent of the digital loans issued in Kenya, will non-bank digital lenders survive against such competition.  Danielle Achieng’

The financial services sector is going through major changes as it evolves. As it gets cheaper to deploy software, niche markets will form for niche financial services.

The advantage non-bank digital lenders have is that they are at the cusp of finding these new and innovative niche markets and will solve the customers needs in a unique and different way. I predict that in the next five years, transaction fees will be so close to zero that it will be imprudent to plan a business wholly around this revenue line.

Currently, only one player owns almost 99 per cent of the mobile money wallets. It is not in the best interest of the citizens for this state to continue, because it becomes a single point of failure for the Kenyan economy.

I, therefore, think that the CBK shall facilitate innovative payment solutions to de-risk the citizen and create some competition in the market. The US, Singapore and India have placed market share caps on payment companies to avoid this risk, it would be prudent for Kenya to follow the same trend.

What challenges stand your way? Komen Moris,  Eldoret

We have found that there are several demographics that do not understand the consequence of defaulting. This is particularly true for younger borrowers. To solve this, we propose a stakeholder-wide financial literacy month, where everyone from banks to saccos to digital lenders are educating their customers about the same thing, making it more impactful.

The heightened mobile penetration in Kenya has seen a rise in digital lending to even under-age children.  Thus, when innocent parents and guardians are later referred to the Credit Reference Bureaus, who should bear the blame? Dan Murugu, Nakuru

Identity verification, the act of confirming if the user is really who they say they are, is part of any digital lender’s risk profiling.

The current system is good enough to confirm if a primary phone number, ID number and device match. By law, once we have sufficient evidence, we can enter into a contract and lend money.

The scenario described above is unfortunate but not common. We are working together with all stakeholders to reduce the chance of such incidents from happening.