In our series of letters from African journalists, Kenyan broadcaster Waihiga Mwaura looks at how debt collectors are causing outrage with their latest scare tactics to recover loans made through digital apps.
A pastor showed up at our newsroom in Kenya’s capital, Nairobi, with a complaint.
Within a week, his phone received several calls from debt collectors who claimed that a companion of his at church had named him as guarantor for a loan she had taken out.
At first the man thought it was all a joke, but after several irritating phone calls, he went from curiosity to bewilderment and finally to anger at how intrusive this shameful way of collecting a debt was.
The intensity of the telephone conversations changed every day.
Initially, the people who called were polite and simply asked him to speak to his friend so that she could return the money she had borrowed the month before.
But soon after, interlocutors became more aggressive and even rude, calling him a false pastor, who refused to tell the truth to his congregation about paying debts and promising that they would make his phone “explode” because of the number of calls. incessant.
To add insult to injury, they even abused his wife when she tried to intervene.
For several days, the pastor was unable to use the phone because he refused to respond to the interlocutors’ demands.
After the story hit the airwaves and social media with the hashtag #Debtofshame, many Kenyans began to recount their experiences when confronted by debt collectors.
One Twitter user said he was warned that “if I don’t pay they will come for my kidney”.
Another said that she once borrowed 2,000 Kenyan shillings (about R$90), and 10 days later “they were on my neck. I couldn’t sleep or think. I got every insult imaginable.”
A third recalled that when he worked as a debt collection agent, he had to meet daily goals set by his employer.
“The owners don’t care how you get the money. They’re only interested in getting their money back. I had to quit because of my sanity,” he said.
Mobile money dominates
There is no doubt that Kenyans have taken out loans through digital lending apps.
They are discreet, quick to access and require no guarantees.
But therein lies the dilemma for creditors who use users’ means of payment to assess their credibility and never meet their customers in person.
In fact, none of this would have been possible if the African continent were not the global leader in mobile money.
Mobile phone network operators have dominated money services in Africa over the past decade.
More recently, however, the spotlight has been on fintech companies, which have laid a solid foundation. Some, backed by major venture capital groups in Western and Asian markets.
They capitalize on a gap in the lending sector, where low-income people do not have access to credit because they do not have job opportunities, guarantees or guarantors.
But their entry into the African market has caused a lot of friction due to the fact that most of them are unregulated, because of their unethical style of doing business.
They attract young people with financial difficulties and shame them using unconventional techniques if they don’t pay.
And while Kenyans were quick to adopt these loans, some described their interest rates as exorbitant.
While the interest on an average bank loan is between 12% and 14% per year, a mobile app loan can range between 75% and 395% per year.
Mortgages through mobile apps
Additionally, some of these companies have been accused of predatory lending practices, with a Chinese lender accused of demanding loan payments within 30 days. While Google, the host of these apps, requires borrowers to have 60 days to pay.
But Kenya Digital Lenders Association president Kevin Mutiso is quick to defend his members. He says debt shame is a bad symptom of a good idea that has helped many small businesses gain quick access to credit.
He says that without digital credit, many Kenyans would not have been able to survive the lockdowns introduced since the Covid-19 outbreak began more than a year ago.
People were able to buy food, pay rent, use transportation and utilities, and pay school fees through these mobile loans, he says.
While some believe regulation is key to taming rogue lenders, others think regulation could stifle an industry that could be key to jobs and investment in a coronavirus-hit economy.
And even with rules like the Kenya Data Protection Act of 2019 – designed to prevent misuse of personal data – it seems impossible to stop the digital lending giant.
According to some market watchers, it could soon be financing the next generation of mortgages through cell phones.
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