Anyone who has tried to borrow money from a bank will tell you it is one of the most tedious chores one can undertake.
Big business does it all the time, and in ordinary circumstances, it comes easy because commercial banks are eager to lend, knowing well the risk is small and the potential gain major.
However, the same cannot be said for individuals who want to borrow in order to start or expand a business; the banks will place all kinds of hurdles in the way. If they didn’t, and the borrowers defaulted, they would soon go out of business.
However, with the advent of the digital revolution, things have changed tremendously, and it has become very easy for banks, with the collaboration of mobile network operators, especially Safaricom on its M-Pesa platform, to offer modest instant loans to almost everyone who owns a smartphone.
The beauty of these loans is that there is no hustle, provided one has an active M-Pesa account. You don’t require collateral or guarantors, and there is absolutely no paperwork involved.
Better still, all those embarrassing telephone calls you had to make to your friends, colleagues at work, and irritated relatives telling them, “Aki niokoe, niko hali mbaya” will be a thing of the past, and thus you get to keep you friendships intact.
Digital loans have become a fact of life; you cannot wish them away. There was a time when even owning a simple mobile phone, let alone a smartphone, was resisted by the more conservative types.
Today, anyone who does not own one is an oddity. The same is likely to happen to digital loans for which millions of Kenyans are applying today. They will become commonplace, mainly due to their convenience.
Despite the Shakespearean admonition, “neither a borrower nor a lender be… For loan oft loses both itself and friend,” borrowing has become a way of life in the modern economy.
When the Bard wrote those immortal words in the 16th Century, they were as true as they are today, but the circumstances were different.
The easiest way to turn a friend into an enemy is to lend him money, for if he doesn’t repay, he will resent you because he will forever be beholden to you. But unless you are crazy, you can’t resent a loan app.
The reasons why people borrow money are many and varied. Nobody — unless he or she is a fool — does it for its own sake.
Most people do it to solve immediate pressing financial problems. Small business people have found these loans to be a godsend.
For instance, if an open-air market trader who sells groceries runs out of cash to buy the next day’s supplies, and there is no line of credit between her and the farmer, a loan of a few thousands will come in very handy. Such a trader cannot default on her loan.
On the other hand, there are those who take out loans to pay rent, school fees arrears, or even emergency hospital charges.
If they are prudent, they will have an idea how to repay the money, and they will have, at the same time, saved face.
Nothing is as humiliating as having to borrow money from relatives to pay maternity fees, considering that one had nine months or so to make the necessary arrangements.
However, it happens all the time, which is where instant digital loans come in.
The unfortunate thing is that this useful facility has been abused by both the lender and the borrower, especially the latter.
A huge number of borrowers spend the money on consumer goods — including alcohol, clothes and cosmetics — instead of using it to generate more income.
As a result, they are forced to become perennial borrowers, turning the whole thing into a vicious cycle of dependency.
If at the end of the month you do not have enough money to repay a debt, you apply for a loan from another app to do so — and still remain indebted.
This is why many people have become uncomfortable about digital loans. The proliferation of unregulated players with shylock-like tendencies has made all the platforms suspect.
Considering that commercial banks are in the business of making money and their interest rates must be on the higher side (short-term loans are by their very nature expensive), it is clear why the Central Bank is uneasy about digital loans that are sinking many borrowers into penury.
However, all are agreed that in a situation where interest rate caps have been imposed on bank loans, thus denying credit to small borrowers, they have no choice but to turn to mobile money.
This means that we are not hearing the last of loan platforms like M-Shwari, Fuliza, Tala, Branch, Stawi, Timiza, Zenka and others.
The best thing the regulator can do is to find ways to standardise interest rates and weed out those outfits whose only interest is to feed on the miseries of imprudent borrowers. It can be done.
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