Mobile Lenders Will Now Reveal Charges Before Loan Offers

Mobile Digital Lenders in Kenya, will now be required to reveal the total charges. Said total charges will include rollover fees, interest rates and late payment fees for the loans they apply for before said loans are disbursed to customers.

The Competition Authority of Kenya (CAK) made it known that it would also be applying the same strategy which has been implemented on mobile money transfer operators in Kenya where the costs incurred, are displayed before money is sent so as to increase transparency in the digital sector.

The Director-General of the Competition Authority of Kenya (CAK); Kariuki Wang’ombe revealed that a study by the Competition Authority of Kenya (CAK) showed that majority of individuals in Kenya, do not know their rights with regards to loans and do not read the documents involved when signing up for or applying for loans.

The study by the Competition Authority of Kenya (CAK) made it known that not more than 27 percent of the establishments who provide digital loans, are aware of the costs and fees charged by other digital loan establishments in the Kenyan market.

The ease of access for mobile loans provided by digital lenders has over the years, become a major selling point for said loans. The downside however, is the extremely high costs involved with end up hitting users with almost unrealistic interest rates which result in major loan defaults across board. Said interest rates could go up to 520 percent when totaled to an annual rate.

Read Also: Users Of Mobile Loans In Kenya Feel The Heat Of New 20 Percent Excise Duty

According to Kariuki Wang’ombe who is the Director-General of the Competition Authority of Kenya (CAK), “If you remember we forced the mobile network operators to be indicating the money they are charging when sending money. We are seeing a situation where we have to force the digital lenders maybe through legislation or a framework in the coming year.”

Due to the increase in demand for quick and easily accessible loans, a number of microlenders have begun to invest in the credit market in Kenya. Many of said microlenders however, are not regulated.

The Competition Authority of Kenya (CAK) which essentially keeps competition in check has stated that the lesser time involved for the loan, the more expensive the annual percentage rates will be. This occurrence has resulted in a major increase in the cases of loan defaults. According to the Competition Authority of Kenya (CAK), seven (7) out of ten (10) have been unable to pay their loans on time at least once.

Competition Authority of Kenya (CAK) says that this means that a total of 77 percent of mobile users have been hit with charges and penalty fees to roll over their debts.

Users of mobile loans in Kenya, have subsequently had to resort to getting loans from one mobile loan provider in order to pay debts owed to another mobile loan provider so as to avoid penalties.

The Competition Authority of Kenya (CAK) says that 33 percent of mobile loan users in Kenya revealed that they had multiple loans.

The surge in demand for mobile loans by users in Kenya, came as a result of a corresponding need for more money due to the economic struggles and severe loss of jobs brought on by the still ongoing Coronavirus pandemic.

As opposed to what was the case in the past when it was difficult to access loans, it is now easy to access loans within minutes from the comfort of a mobile phone.

Read Also: Central Bank of Kenya Looking To Restore CRB Listings For Digital Loans

According to the Central Bank of Kenya (CBK) users of digital loans from unregulated lenders in Kenya increased from 200,000 in 2016, to more than 2 million in 2019.

The Competition Authority of Kenya (CAK) is paying more attention to digital lenders at a period in time when the Central Bank of Kenya (CBK) has also been soliciting for regulatory strength in order to monitor the mobile loan sector and ensure that the severe predatory lending and expensive monthly interest rates are stopped.

Members of Parliament (MPs) has offered the Central Bank of Kenya (CBK) express powers to be in charge of the lending rates for Digital Mobile Lenders operating in Kenya. Said express powers would be implemented through a proposed law that would lead to the Central Bank of Kenya (CBK) being able to control the products of digital money lenders, the sharing of borrower information and management.

The Central Bank of Kenya (CBK) Amendment Bill 2021 which was approved by the Parliamentary Committee on Finance and National Planning included a clause that ensures that the Central Bank of Kenya (CBK) will be able to set interest rates for digital loans.

The Director-General of the Competition Authority of Kenya (CAK); Kariuki Wang’ombe says that, “We will continue working with the CBK on the Bill that they are currently putting in place which is informed by the study we had done and the other angle we will take is that we will be forcing them to publicise their rates so that borrowers can compare prices and see A is more expensive than B.”

He added that, “Consumers should also know their rights and they should be borrowing loans not on Fridays at midnight but they should be borrowing on Monday in the morning.”

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