On Safaricom, there is a credit service app known as Fuliza which provides loans to people. Many Kenyans have accessed its services.
In fact, about Sh316 billion was borrowed on the credit service app Fuliza loans in six months which is Sh1.8 billion a day and is a thirty per cent rise when compared to the money borrowed by consumers last year in the same time frame i.e. Sh 242.6 billion.
It is said that about 60 per cent of the loan was meant for consumption which shows that many households are dealing with an economic crisis.
According to data released by Safaricom Plc, it is estimated that around seven million people in Kenya borrowed money from Fuliza which is recorded as the highest number of users on the app.
The number of users on the app increased by fourteen per cent as last year there were six million on the platform. Fuliza has managed to push other credit services like KCB M-Pesa on Safaricom out of the picture.
Recently, Safaricom announced that it is working on a credit repair programme which will lead to four million people being able to access the service for loans.
The high uptake of Fuliza loans saw the company’s overall service revenue grow by 4.6 percent to Sh144.8 billion in the first half of the year, with M-Pesa contributing nearly half of it.
Now, this development will benefit people of Kenya who with the help of the advancement of technology will not have to go to banks to apply for loans. They can get it while sitting in the comfort of their homes, will not have to do any major paperwork, run for documents here and there and meet certain requirements to be eligible for a loan. The high number of people who have borrowed on Safaricom demonstrates that today the internet is also taking care of the financial interests of the people.
It is a well-known fact that banks only give loans to people who are employed or possess a property due to which a large number of people who don’t have a job or a property cannot get a loan but with the entry of Fuliza, things are certainly changing.
Now, if this concept of online credit facility has benefits, it also has many negative consequences too and what occurred in China proves this.
Online road to debt crisis
In China, the government has taken steps to regulate the online loan facility by putting the financial technology businesses in the same legal domain as regular banks in response to the habit of people taking huge loans online, especially the youth, which has become a concern.
Big tech companies in China have taken many steps to curb their services online following the government’s decision to regulate the online credit facility. However, small firms have managed to establish their hold on the internet and unfortunately the government cannot regulate them as they are able to bypass many norms and regulations.
In China, banking services which are not accessible to everyone has led to the establishment of a giant private loan market online. Since, the old generation rely on their relatives and friends for short term loans, the youth is increasingly seeking to fulfil their monetary requirements by going on the internet. Here too, there is no major paperwork, documentation and physical appearance required, as these online loan services just require an ID number and some other personal information to sanction the loan amount.
Although regular banks in China have been trying to create their presence online by offering quick loans through their apps, these Fintech businesses remain popular among young people who seldom go to a bank.
This will lead to a catastrophic situation as the online loan market has led to problems for many consumers since they borrow money with high interest rates and irrational terms and conditions. In fact, a businessman told the South China Morning Post that he had to sign two contracts when he borrowed money from Weibo, which is a Twitter-like micro blogging site, which came with high interest rates. On the very first day, when his debt became overdue, he said collectors began texting and calling him in the morning and threatened him, “There were endless threats and debt collection calls from strange numbers across China.”
They also tried to shame him online which resulted in huge stress and panic.
Eventually, he managed to pay back with the help of his family members and pledged that he will never make this blunder again.
Although this concept has assisted many people who are in desperate need of credit, it has also culminated in a situation where youngsters are overspending and then are trapped in massive debts which they cannot pay back. It has destroyed the lives of many people who found themselves in a debt-trap crisis.
Lesson for Kenya
What happened in China can be described as a cautionary tale for Kenya where the same concept is emerging at a rapid rate. The Chinese experience tells the Kenyan government that it needs to implement strict laws and regulations to protect the interest industry from giving platform to apps whose goal is to exploit the helplessness of innocent people. It can start by introducing a law which mandates that if an individual has not repaid his previous loans, then he would not be permitted to get new ones or initiate criminal prosecution against debt collectors for violation of privacy.
China’s mistake must not be repeated here and Kenya must tread carefully on this route.