Debt shaming sees drop in unregulated loans

According to the 2021 Financial Access Household Survey, loan application dropped by 6.2% in 2021

In Summary
  • Last week, President Uhuru Kenyatta signed a law bringing digital lenders under CBK
  • The law prohibits debt shaming  and overpriced loans
A Fuliza point along Waiyaki Way, Nairobi on October 2, 2021
A Fuliza point along Waiyaki Way, Nairobi on October 2, 2021

Debt shaming and high-interest rates made borrowers shy away from unregulated digital loans, with applications dropping by 6.2 per cent across the last two years.

The 2021 Financial Access Household Survey by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics and Financial Sector Deepening  shows financial access through formal non-prudential channels fell by 2.9 per cent to 35.7 per cent over the period.

“This could reflect heightened competition from regulated digital credit providers which tend to provide more stability. Kenyans have also cited some of the unfair debt collection practices that particularly characterise some of the more informal providers,” CBK director of research Robert Mudida said in the report released on Wednesday.

The digital lenders are regulated after President Uhuru Kenyatta signed into law the 2021 Central Bank (Amendment) Act.

The law prohibits debt shaming, overpriced loans among other unethical lending practices. 

Non-deposit-taking credit-only providers have remained largely unregulated for long, with several abusing the freedom to charge high interests and debt shame their customers.  

Some of the interest rates rise up to 520 per cent when annualised, leading to mounting defaults and an ever-ballooning number of defaulters and listing by the Credit reference Bureaus.

While unregulated digital lenders reported a drop, access to formal financial service providers grew to 47.8 per cent in 2021, a 3.9 per cent from 47.8 per cent in 2019.

This was primarily driven by overdraft facility Fuliza, a partnership between  Safaricom and lenders NCBA & KCB.

According to data from Safaricom financial results covering six months to September 30, 2021, the Fuliza platform disbursed loans totaling Sh242.6 billion in the period.

Daily active Fuliza customers were estimated at 1.7 million people in the period while the average loan was sized at Sh375.80.

Mobile money daily and weekly usage have increased significantly in 2021 pointing to increased liquidity needs for households.