Lauded for bringing financial inclusion to millions of otherwise “under-banked” consumers, Mobile Money is seeing its first backlash is east Africa.
The lightly regulated phenomenon of issuing micro-loans via mobile phone credit has driven a wave of consumer demand, and alleviated poverty, across various emerging markets – especially in east Africa where one brand alone, M-PESA, enjoys over 20 million users.
However, in enabling people to over-borrow, often with annual interest rates set at several hundred percent, defaults are on the rise. The number of Kenyans blacklisted by the country’s credit bureaus has risen from 150,000 to 500,000 in the last three years. Increasingly online gambling is being blamed for the reckless borrowing.
A recent survey conducted by the Consultative Group to Assist the Poor (cgap), a consortium affiliated to the World Bank, found that 35 percent of respondents in Kenya and 21 percent in Tanzania had taken out digital loans.
Most of these had made late payments, and 12 percent and 31 percent respectively said they had defaulted.
According to Deborah Drake of the Centre for Financial Inclusion, “Fintech is evolving quicker than regulation can keep up.”
Many regulators in Africa have deliberately taken a backseat when it comes to financial technologies, letting the private sector solving problems before stepping in.