Debt-Shaming: Alarm Over Mobile Loan Apps' Collection Tactics

  • Photo of a man using a phone in Nairobi
    A man pictured using a phone in Nairobi
  • There are more than one hundred registered digital lenders in Kenya, with the mobile loan app industry having skyrocketed in recent years.

    Pundits have remained divided on whether such applications are welcome credit-lines for the people, or well-disguised traps. High interest rates compared to traditional lenders are often cited by proponents for stricter regulation on the industry.

    One often over-looked factor, however, that cuts across several of the most popular loan applications and affects many users is debt-shaming.

    Debt-shaming. in this case, refers to  applications and collection agencies using clients' social circles to shame them into paying up. Representatives of the services regularly call friends, partners, family and associates of defaulting customers, informing them to tell the clients to meet their obligations.

    File image of Kenyan banknotes
    File image of Kenyan banknotes

    Technically, the collection practice is legal as a vast majority of the applications require users to agree to terms and conditions allowing them access to users' contacts and giving them permission to send messages and make calls.

    Users rarely read the terms and conditions when signing up for the apps, leading to the surprise when their employers or partners are called and informed about their debts.

    Central Bank of Kenya (CBK) Communications Director Wallace Kantai was yet to respond to queries from by the time of publication on whether there were any plans specifically dealing with the practice.

    CBK Governor Patrick Njoroge on Thursday, September 10 questioned unending speculation on the industry.

    "Digital lenders run amok. They are less than 0.14 percent of lending by banks.

    "In terms of noise and pain, they are at 90 percent," he wrote in response to an international exposé on one of the apps' practices.

    CBK has, in recent months, introduced more stringent regulations targeting digital loan apps which previously faced close to no regulation.

    In April, the Central Bank barred loan apps from forwarding names of defaulting customers to the Credit Reference Bureau (CRB).

    It also stopped the blacklisting of borrowers owing less than Sh1,000.

    “The withdrawal is in response to numerous public complaints over misuse of the CIS (credit information sharing) by unregulated digital and credit-only lenders, and particularly their poor responsiveness to customer complaints,” a statement from the regulator read in part.

    Of the numerous applications, several are backed by foreign investors through Private Equity (PE) funds among other vehicles.

    The apps also engage collection agencies which apply similar shaming tactics, contributing to growing calls for greater regulations.

    File image of a man on his phone
    File image of a man on his phone