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- Mobile lending apps have become popular in Kenya in recent years due to their convenience.
- But they have also attracted controversy for their lending practices, with calls for regulation by the country’s central bank.
- There however is no law that would allow for this, with experts saying regulation has tended to follow financial innovation in Kenya.
As evidence of this order, the user shared a screenshot of a webpage with the group of more than 2 million members.
The headline, “Branch, Tala among lending apps operating illegally in Kenya. Kenyans asked not to repay existing loans”, appears below a photo of interior cabinet secretary Fred Matiang’i.
The story was widely shared, but is it accurate given the surging popularity of mobile lending apps in Kenya?
Several lenders allegedly affected
The shared screenshot is of an article on Butwaa, a website focused on Kenyan events. The story has also appeared on other websites Hivipunde.com and the Kenyan Weekly.
Other lenders who were in the minister’s crosshairs included Opesa, Okash and Zenka, the article reported. Branch and Tala each have over five million “installs” each on Google’s app store Google Play.
The articles all attributed this quote to Matiang’i: “We are urging the public not to clear the existing loans until a case is determined on how the mobile lending apps acquired licences to operate. We are doing everything humanly possible to ensure that all business operations in the country follow the law.”
Interior ministry ‘not aware’
The articles were all published on 21 May 2019. But there’s no mention of the alleged ban or order not to repay on the interior ministry’s official Twitter account.
We asked interior ministry spokesperson Wangui Muchiri about the quote, and she said she was “not aware” of such a statement.
While recently popular, the lending apps are not without controversy. Kenya’s trade ministry, its central bank and four other regulators in the country’s financial sector have warned the public about “fraudulent financial services, products and applications”.
“These services include online pyramid schemes, credit and savings schemes as well as fraudulent mobile loan applications downloadable from mobile app stores, including Google Play Store and Apple Store,” they said in a July 2018 statement.
The statement did not name any app. But they have continued to be popular for their convenience in bridging short term financial needs.
Central bank flags high interest rates
Patrick Njoroge, Kenya’s Central Bank governor, has criticised mobile money lenders for the high interest rates they charge.
“We need to deal with them because in effect they are shylocks,” he said at a press conference on 28 May 2019. “Their behaviour is very much shylock behaviour only on a nice platform, nice app.”
Njoroge said mobile credit providers should be regulated like commercial banks. The central bank has authority over banks and microfinance institutions that take deposits.
But an expert told Africa Check there are currently no laws to regulate loan providers who do not take deposits including the mobile loan apps. They therefore operate in a legal lacuna.
Other mobile loan applications offered by banks, such as Fuliza and the small business-focused Stawi, are regulated by the central bank.
Digital lenders are registered but unregulated
In an April 2019 report on financial inclusion, the central bank called for an in-depth study on the “rapid uptake of unregulated digital apps loans”.
FSD Kenya, an independent trust, researches financial markets in Kenya. In an October 2018 report, it said financial service providers that “offer credit but do not take deposits” are “unlicensed and not regulated” by the central bank.
Mobile lenders are registered, like any business, with the business registry service, stating that their main business function is to lend money.
In Kenya innovation usually precedes regulation, Dr Bernard Shibwabo told Africa Check. He is director of research and postgraduate studies at the faculty of information technology at Kenya’s Strathmore University.
Shibwabo said that specific laws “to govern these mobile loan platforms and applications, so far, do not exist”.
“You take the risk as a client to join the platform and transact. The same applies to the service provider. They are also taking a risk [in giving you their money],” said Shibwabo.
Conclusion: Popular digital apps controversial, but haven’t been banned
A powerful Kenyan minister has banned popular money-lending mobile apps, a much shared post on a Facebook page with over 2 million members alleged in May 2019.
Interior minister Fred Matiang’i allegedly urged debtors not to pay back money loaned to them as the lending apps as authorities probed their licences. But we found no evidence of this claim.
While the apps are registered, they are not yet regulated. A financial expert told us that in Kenya, regulation often comes after innovation, sometimes causing a regulatory vacuum.