DISILLUSSIONED

A future that is dead

Have you ever asked yourself where does a broke young lad get his money?, well I guess you might know and say may be from friends or family, but alas!!! No, there is no way a friend will always be giving money to another broke friend who can't repay. There is this new pro apps in town, the money-lending apps. There are many of them in play store and guess what they are the 10 most downloaded android apps in Kenya!!!!!.

the top 10 most downloaded money-lending money-lending apps.

1. Tala
2. Branch
3. Saida
4. Easy Banking
5. Mula
6. Safaricom M-ledger
7. KCB
8. CBA Loop
9. Kenya Quick Cash
10. Haraka

you can get the full top 50 list @ View the entire top 50 list here

without forgetting the one from the biggest mobile network operator  in Kenya-Safaricom, M-shwari.
So you might be surprised if you see your broke young lad breaking and throwing his safaricom line or even shutting down his social media like facebook. I pity such young innocent kids. Where is their future heading to? what do you think are this owners of money lending apps doing to curb such things? are they really happy or sad? definitely they are happy because their future is guaranteed once they submit the list of those who didn't repay their loan to CRB. Remember this money lending apps don't even need much information like banks need 😁😁😁, some might only need your social media profile to give you loan based on what we call social media reputation. For instance Tala will deploy an algorithm that assigns someone a “social reputation score” based on his/her online presence. And because the person requesting loan probably might have 10K followers, he/she will get a 50K loan, just like that!😂😂.
A recent survey shows that over 7 millions kenyans are digital borrowers through this money-lending apps and over 5.5 million of this are young broke lads probably students and unemployed graduates. 
 Now lets talk about how this owners of money lending will benefit from giving loans to such broke lads using what is called the 10X rule in Venture Capital.
Let’s say I am a venture capitalist. You approach me with an idea, and I put money into it. It is important for you to understand that I am taking a huge risk. If you start-up fails, I lose my money. So to justify this risk, I’ll tell you that I’ll put my money in your start-up and get ten times what I invest in return. So if I put 1 million shillings into the start-up, I’ll get back 10 million shillings over a period.

Now we have Venture capitalists who have put in 5 billion shillings into these money-lending apps. In the next couple of years, they are hoping to be paid back 50 billion shillings. How do these Apps make the 50 billion? Two things. First, they grow their loan-books by giving loans to those who do not deserve them. It is not right to give an 18 year-old with no job a loan of 2K just because they own a smartphone. The chances are that they will be unable to repay this loan is considerably high.

They’ll be blacklisted by the Credit Referencing Bureau (CRB) which will affect their ability to get loans in future. Let’s say Tala gives you a loan of 2K today which you don’t pay and CRB blacklists you. In future, you start a business which you need to expand by seeking a 50K loan. You will be unable to get this loan. CRB will actually require you to pay 10 times the 2K you borrowed to get their clearance certificate. Thereafter, you will have to wait for a certain period for your credit worthiness to be assessed before getting the loan you need.

The second thing that these money-lending Apps do is to hike interest rates. Branch charges interest rates of between 12-170%. Tala charges between 61-243%. KCB M-Pesa has an interest rate of 73%. Okoa Stima charges you 521%. Now look at this and tell me if these Apps are any different from shylocks. These are shylocks in suits and posh offices with institutional backing from CRB.

If Kenyans –especially the youth- do not begin thinking seriously about the harm that the explosion in digital lending is going to cause us, then we will end up with a tragedy larger in scale than what the world witnessed in Andhra Pradesh.

Let me break it down for you.For instance India is the hub of micro-finance schemes. And the South Indian State of Andhra Pradesh is the hot-bed of the country’s microfinance sector. In Andhra Pradesh, almost everyone owes money. In 2010, the state witnessed a prolonged drought which resulted in poor harvests. The loan-dependent farming population, unable to repay credit-bureaus that were on their necks, resorted to suicides. Thousands of people in Andhra Pradesh committed suicide because they were unable to service their loans. In global economics circles, this phenomenon would later be referred to as the Microfinance tragedy of Andhra Pradesh.

Now, the world’s largest Microfinance institution –SKS Microfinance- is based in Andhra Pradesh. When the company went public on the London Stock Exchange in 2010, its stock was 13 times oversubscribed. It attracted a multi-million dollar IPO while the population it serves is the poorest in India. This, in my opinion, is making money off the poor. This is immoral and it should be stopped.

To avoid the Andhra Pradesh tragedy from occurring in Kenya, we need to regulate the digital-lending sector which is profiting off poor Kenyans. Most importantly, we need to teach our people basic financial literacy skills. Otherwise, the young jobless Kenyans will begin committing suicide in droves.
So imagine a lad taking a loan to repay another loan and take another loan to repay another and the series continues. Thus the lad might end up becoming a prisoner of this money lending apps and to be a prisoner I actually mean you don't have a freedom and right to enjoy whatever you are given.

The Muslim community might be the best community that has set a good rules for loans, saying any loan taken is totally prohibited so long as it has interest and well this is good because if my dream is to help the poor then why would I charge an extra penny if he or she is repaying on time or even due to situation he/she might be unable to pay. So if I gave you $100, you ought to return the same $100 I gave you.
 A blogger by the name JAMES KARIUKI wrote in Sunday nation about this apps. He says,
the proliferation of digital loan platforms has not improved lives, a new survey shows.

Instead, the survey shows, many Kenyans have become prisoners of these systems, in some instances borrowing to gamble or settle previous debts.

The study says about 6.5 million Kenyans are digital borrowers with 31 per cent taking the cash to try their luck in betting.

Sixteen per cent of Kenyans have never taken loans through mobile phones while 20,000 Kenyans (three per cent) reported borrowing to place bets, says the report.

The joint survey conducted by the non-state financial inclusion agency – FSD-Kenya, Central Bank of Kenya, Kenya National Bureau of Statistics and Consultative Group to Assist the Poor says that available digital loan products have not improved livelihoods.

“Digital credit is not reaching everyone and remains ill-suited for most of the population, such as farmers and casual workers, whose livelihoods are characterised by irregular cash flows,” says the phone survey.

While borrowing to meet basic needs as well as replenish stocks in small businesses were the main reasons for digital borrowing, 800,000 Kenyans reported taking several loans to repay others.

“The rise of the digital credit market has raised concerns about the risk of excessive borrowing and over-indebtedness among lower-income households.

Digital loans are easy to obtain, short-term, carry a high interest rate and are available from numerous bank and non-banking institutions,” states the report.

About three million borrowers reported late loan repayments that attracted hefty penalties with nine per cent of defaulters being reported to the credit reference bureau as risk-averse loanees.

“Half of borrowers spent their savings to repay loans, 20 per cent of loanees reported reducing food purchases and 16 per cent reported borrowing (mostly through family and friends). Poor business performance and loss of jobs in 2017 were the main cause of default,” it says.

The study calls for the establishment of an oversight authority to scrutinise the lucrative interest rates and penalties used by the digital loan providers some of which don’t fall under any regulatory regime.
You have probably heard the saying, when the deal is too good, think twice.
Kenyan gov't must come up with a good solution in order to save the current generation who are the future leaders and other future professionals of this country.

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