Can’t pay, won’t pay! Mobile lenders increase threats as defaults swell

 

Customer hand using a smartphone to scan QR code [Courtesy]

Pius Mutinda’s phone beeps incessantly before he fishes it out of his pocket.

He looks at it exasperatedly before disconnecting the incoming call and putting his phone back into his pocket.

The Mlolongo-based boda boda rider in Machakos County mouths a few expletives under his breath before explaining to fellow riders about the source of his vexation. 

He has lost count of the number of times the caller, a debt collector from one of the ubiquitous loan apps on his phone, has called on this particular day, sometimes using different numbers.

All the calls go unanswered. Mutinda says despite the uncountable unanswered calls and a few heated exchanges on the few occasions he “accidentally” picks them, the debt collectors won’t give up.

But Mutinda is adamant that he won’t give in to the threats and intimidation to pay up his Sh2,000 loan he took some time last year when he was out of a job.

“I am waiting for them to come and do their worst; you can’t intimidate me and then ask me to repay you,” he said.

“I know I owe them, but don’t they have any better way to ask for their cash other than threats?”

A few metres away Joshua Ouko scowls at his phone after reading a text message from another mobile money lender. “Customer transparency is key in any business agreement, but for your case, we have realised that you are playing fraudulent (sic). We have sent you reminders, but you are not cooperating. We are now reaching your phone book from the next hour (sic),” reads the “offending” message.

True to their word, Ouko says, the lender calls one of his contacts, telling him he had been listed as one of Ouko’s guarantors and asks him to pay for his loan.

Luckily, his contact first calls him to ask if that is the case.

“Why should someone disturb others yet I took the loan as an individual? I feel disrespected and my privacy invaded. I have not refused to pay but how they go about collecting their money is what I have a problem with,” says Ouko.

Many Kenyans are fed up with the crude tactics employed by some mobile lending apps to have borrowers pay up.

The Central Bank of Kenya (CBK) last year banned all unregulated digital and credit-only lenders from submitting names of loan defaulters for blacklisting at the Credit Reference Bureaus (CRBs), dealing a major blow to their debt recovery mechanisms, as many borrowers saw it as a free pass to default without any repercussions. 

“The withdrawal is in response to numerous public complaints over misuse of the credit information system by the unregulated digital and credit-only lenders and particularly their poor responsiveness to customer complaints,” said

CBK Governor Patrick Njoroge in April. There are three licensed CRBs in the country — Metropol, TransUnion and Creditinfo International.  

While many see the mode of debt collection as cruel, the lenders claim they have no better alternative to ensure they recoup their cash.

Before the ban on blacklisting, the lending apps used this as a deterrent to unchecked default rates.

This worked well for them, with many fearing being blacklisted as it would mean one could not access loans from other financial service providers or could be locked out of a job, where potential employers asked for a CRB clearance certificate as one of the requirements for employment.

CRBs use the information provided by financial service providers to create reports of each borrower, containing data on all the loans (past and present) that they have ever received and the repayment pattern. Your status can then be listed as good or blacklisted.

Good shows that you have been compliant in repaying your loans, whereas “blacklist” shows that you have defaulted on some of your loans or you have not paid as per the agreement you made with the lenders.

This information has become very critical, as all lenders consider it before they give you a loan.

Digital Lenders Association of Kenya (DLAK) chair person Kevin Mutiso said the move by CBK to lock out unregulated lenders from listing individuals with CRBs negatively impacted their operations.

Mr Mutiso said the lenders had no means of assessing potential customers for loans as they have nowhere to check their credit score.

He said the regulator was wrong to issue a blanket ban instead of targeting rogue lenders.

“We condemn with the strongest terms possible the debt shaming tactics employed by some lenders. We are now in talks with these lenders and in two months, we promise a departure from this uncouth behaviour,” said Mr Mutiso. One of the toughest departments in the digital app loans work space is debt collection.

Leaked emails from one of the digital apps seen by Financial Standard last year during a lay-off exercise showed that staff being sent home were given the options of working as debt collection agents or exit the firm. Many chose the latter.

Any means necessary

As a debt collector, one is paid a commission on every debt recovered, which has become increasingly difficult in the Covid-19 era. One debt collector who spoke to Financial Standard on condition of anonymity said they had to use every means necessary to ensure borrowers paid up.

“We are paid on commission. If someone fails to pay, then my pay goes down. Now the situation is worse because we cannot list the borrowers with CRBs,” said one agent.

Predatory lending has largely been regulated in advanced economies such as in the United States.

In 2019, for example, internet giant Google came up with new regulations that prohibited digital lenders that engaged in predatory lending from its App store.

Apps for personal loans, noted Google, were required to disclose the minimum and maximum period for repayment.

They also had to show the maximum Annual Percentage Rate (APR), which generally includes the interest rate plus fees and other costs for a year, or similar other rate calculated consistently with local laws.