After adopting a mobile money system that allows people to make payments and transfers through their cell phones, Kenya has become a leader in financial inclusion. But some borrowers have now become burdened with debt after taking out high-interest rate loans from lenders that use the same technology — a problem that has come to the attention of the Kenyan government, Reuters reported.
“We have a lot of predatory lending out here, which we want to regulate,” Geoffrey Mwau, director general of budget, fiscal and economic affairs at the country’s treasury, said on Thursday (May 24).
To ensure that lenders are fair to their customers, the country’s finance ministry has drafted a financial regulation bill that includes digital lenders. And, since Kenya has been an experimental case for new digital lending tools, Reuters said that the regulation will be closely monitored by fintech startups. But mobile banking has been having a significant positive impact in the country, with the use of mobile banking lifting 194,000 or more Kenyan households out of poverty from 2008 to 2014.
According to a Wall Street Journal report last year that looked at research from economists Tavneet Suri of MIT and William Jack of Georgetown University, the use of mobile phones enables poor countries to provide communications technology without building a landline network and enables them to bypass traditional banks as well. Over the course of the last decade, mobile money has reached the majority of Kenyan households, with around 110,000 so-called “agents” around Kenya operating from small kiosks where cash can be deposited and withdrawn.
Once the money is deposited, Kenyans can spend it anywhere in the country. Suri told the paper the kiosks act as debit cards. Mobile lets you “create relationships with people who are much farther away,” she said, noting the average transaction happens between people that are 120 miles apart. Without mobile banking, it would cost $5 in bus fare to deliver the cash, which is a lot of money for most Kenyans.