Digital lenders should take inspiration from Fuliza’s cut

The approach of Safaricom and its banking partners to lower the costs of the Fuliza mobile overdraft is the right one.

The lure of easily accessible mobile loans has seen mostly low-income Kenyans, including young people, indebted.

Punishing interest rates of over 100% of annual charges plus fees have resulted in borrowers being listed on credit reference bureaus (CRBs). The decision by Safaricom, KCB and NCBA to lower Fuliza’s fees should encourage other digital lenders to review their interest rates.

In addition to charging high interest rates, consumers say digital lenders breached their data privacy by bombarding contacts they saved on their cellphones with default calls and messages.

In a country with high unemployment, predatory lending should be stopped and lenders regulated to protect Kenyans from the pain of expensive credit and the indignity that comes with it.

These market practices thrived in an environment where digital lenders were outside the scope of the CBK. The law required all digital lenders to apply for CBK registration by September, prompting some fintechs to file lawsuits on the grounds that the law was unconstitutional and intended to limit their operations.

Kenya had over 500 unregulated microlenders, driven by the increased need for quick loans and reduced bank lending to individuals and small businesses.

No business can survive interest rates above 100%, meet operating costs and generate a return for its owners.