While digital lenders in Kenya have agreed that Kenyans indebted to more than one mobile lending application will no longer continue accessing loans from multiple lenders, the tables are turning.
In what could be a silent coup against these lenders, Kenyans feel that the tactics used by some of them to recover debt are overboard and breach barriers which should not be broken.
The Digital Lenders Association of Kenya’s (DLAK) desire is to have Credit Reference Bureaus (CRB) put in place a mechanism that will enable DLAK’s members to acquire a borrower’s credit history in real-time. The target is to lock out borrowers with poor credit scores if the proposal sails through.
However, while this has been done, borrowers feel that some of the lenders have been going overboard and even breaching privacy in their loan recovery mechanisms.
According to Ajua, an Integrated Customer experience company, Kenyans want lenders who will be respectful even when the borrowers have defaulted.
In their Q3 report, Ajua reported that customers increasingly reported experiencing hostile treatment when being asked to repay their loans. This is despite the growing demand for mobile money services which include loans.
“In a bid to recover debts, some lenders resort to accessing information from their customer’s contact list prompting their contacts to push the loanee to clear their debt without their customer’s consent, an act which many customers feel is a breach of privacy.”
When Ajua asked Kenyans what they considered most important when choosing a mobile money lender most customers considered interest rates, repayment duration, the period of loan disbursement and dignified treatment of customers.
Speaking on their criteria, one customer replied, “Reasonable rates, they do not call or text everyone on your contact list to tell you to pay the loan if defaulted for some time…”
In the long run, these methods of debt recovery ranging from intrusive calls to aggressively texting loanees multiple times in a day are both ineffective and unsustainable for lenders as such tactics often lead to a high churn rate and loss of revenue in the process.
Ajua recommends that to prevent this from happening, mobile money lenders need to improve their customer experience, stay competitive in the market and be compliant with the Data act of 2019.
“One way would be to leverage the existing gaps and ensuring transparency by simplifying and communicating terms and conditions better, charging reasonable interest rates and ensuring fair and respectful treatment of customers.”
Multiple loans from multiple fintech lenders
As it is, more than 7.6 million Kenyans have loans from multiple mobile loan apps. Two per cent of these default and are listed with the Credit Reference Bureaus (CRBs) in the country.
More than 380,000 Kenyans have so far defaulted on loans taken from the mobile money lenders where on average, a borrower in the country has loans from at least six out of the 10-plus mobile money lenders.
Noteworthy is that mobile money loan apps charge unregulated interest rates resulting in exorbitant charges to the borrowers.
Banks are continually facing stiff competition from mobile money providers and Saccos but mobile money debtors feeling the pinch on tactics employed by the lenders to make them service their loans.
Ajua’s data shows that Kenyans are more informed and are actively exploring other options that suit their budgets particularly mobile money lenders.
Mobile money usage has grown from 27.9 per cent to 79.4 per cent in the last decade compared to a growth of 26 per cent in traditional banks usage over the last 13 years according to the 2019 FinAcess Household Survey co-written by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics (KNBS) and the Financial Sector Deepening Kenya (FSD).
Ajua reports that 27.3 per cent of Kenyan consumers who did not have bank accounts cited low income and working in the informal sector as the main reasons for not having bank accounts.
“Some preferred using M-Pesa because it allows them to save relatively less money compared to banks which close an account once it remains dormant for a while,” notes the report.
High transaction charges were also a deterrent when it came to operating a bank account. For others, operating a bank account was practical when they had a salary but once they lost the job, they abandoned the bank account.
With the report, it seems that traditional banking has lost some ground and mobile money lenders ill follow suit if they do not improve their customer care.