The Parliamentary Budget Office (PBO) raised a red alert over digital mobile that have left many households trapped in debt.
The loans are highly-priced, and there are concerns that their impact on financial and economic matters has adverse effects on sustainable economic growth.
In a report titled Evading Recessionary Pressure under a Mounting Debt Burden, PBO states that “the rise of short term, high-interest digital credit uptake particularly by low-income households have contributed to an increase in household indebtedness.”Â
While the loans solve short-term liquidity problems in the household, it has been found that it negatively affects long-term investments and denying borrowers’ financial empowerment.
Mobile money lenders are hardly regulated, with many taking advantage of Kenyans thirsty for quick cash to meet their daily needs. The default rate for digital loans has been rising, with many borrowers listed with Credit Reference Bureaus (CRB). About 13 per cent of money borrowed through digital mobile loan platforms have defaulted.
The country’s economic growth driver, the middle class, is the most affected, dampening economic development.
There is a debate to have the digital lenders e regulated by the Central Bank of Kenya (CBK), with nominated MP Gideon Keter sponsoring a private member’s bill to that effect.
The legislator, through the CBK (Amendment) Bill 2020,Â
He proposes that mobile lenders seek a license before operating in the country. The legislator also seeks to have the lender thoroughly regulated to bar them from unethical practices, including shaming the defaulters and overpricing their loans.
But this is bound to face hurdles as digital lenders operate without deposits; thus, they do not require a CBK license. Last year, the regulator denied the digital lenders access to the CRB listings.
