Experts in Kenya have criticized digital lenders for charging high interest rates, often perceived as infringing consumer rights.
Reportedly, the average interest rate for a 30-day digital loan ranges from 20-30% for online lenders, based on the borrower’s risk profile. For a Sh1,000 loan, the new exercise duty could be between Sh40 and Sh60.
Financial analyst Daniel Ogachi highlighted issues of exorbitant repayments, sometimes double the borrowed amount, leading to conflicts in loan recovery.
These concerns were discussed at a Digital money consumers’ sensitization meeting in Nairobi. Ogachi emphasized the need for fair digital financing, ensuring borrower rights are protected.
Digital lending in Kenya operates mainly through mobile applications, with the Central Bank of Kenya (CBK) reporting 400 pending digital lender applications and only 32 registered operators.
Digital lending accounts for 54% of the country’s total borrowings, approximately 116 billion shillings annually.
Ogachi also raised concerns about inadequate consumer data protection, with instances of loans being borrowed under others’ names, leading to misdirected repayment demands. He called for financial inclusion and clearer regulations in digital lending.
Michael Mungoma, Youth Education Network project officer, stressed the role of consumer organizations as government watchdogs.
Despite the Consumer Protection Act, implementation challenges persist, especially in digital financing. Mungoma noted gaps in consumer information access, allowing lenders to exploit data for loan marketing.
He emphasized the importance of consumer awareness regarding redress mechanisms and protections. The CBK’s 2022 regulation mandates licensing of digital credit providers within six months from its March 18, 2022, effective date.