Kenyans go to desperate lengths to find money, incurring high costs for loans and intrusions into their privacy.
A new study by the Competition Authority of Kenya (CAK) reveals that in their quest for quick and easy-to-get digital loans, many borrowers do not consider the costs of loan products and take loans from multiple lenders, though a majority are unable to repay.
This has allowed unscrupulous digital lenders to inflate loan costs by imposing penalties that push cash-strapped Kenyans deeper into financial distress.
"Pricing of digital loans was not an important factor to borrowers in choosing the lender. The two main considerations are speed of disbursement and ease of repayment," says the Digital Credit Market study.
"(Only) 27 per cent of digital borrowers were aware of the fees and costs of other digital loan providers in the market."
The study was undertaken by CAK and Innovations for Poverty Action (IPA) in the year to June 2021, and is published in the Auditor-General's report on the authority.
The study found that the prices of digital credit in Kenya are high but noted that younger people in particular still seek the loans.
"Some 77 per cent of mobile loan users reported not being able to repay a loan at least once. This mirrors the high incurrence of penalty fees for digital borrowers," the report states.
The study also reveals that 33 per cent of respondents reported they had multiple mobile loans, revealing the desperation of many borrowers in hard economic times.
"There is multiple borrowing among men than female borrowers, with 9.71 per cent of men having more than one account as compared to 7.74 per cent of women," the report says.
"Borrowers aged between 25-44 held multiple accounts at 11.08 per cent while adults aged between 45-64 years recorded 8.01 per cent."
CAK found that many financial institutions - particularly banks and microfinance lenders - hid information from consumers on the costs of loan products.
The Central Bank of Kenya (CBK) has also been tough on digital lenders in the past two years, citing unprofessionalism, intrusions into the privacy of clients and hiking charges.
CBK proposed a bill to Parliament - Central Bank of Kenya (Amendment) Bill, 2020 - that seeks to regulate digital lenders following complaints about their unprofessional conduct.
The bill went through its first reading in the National Assembly on February 25, 2021.