Mobile Loans Crisis

Have you realized how easy it is to access mobile loans? The bar is so low that even people who don’t have a viable source of income are eligible. It seems so easy now, but that wasn’t always the case. Before we discuss the issue of mobile loans, let’s go back in time. Allow me to analyze the drastic change in mobile telephony over the past 2 decades.

A brief history of mobile telephony in Kenya

Since the late 90s/early 2000s, mobile phone connectivity in Kenya has witnessed explosive growth. When first introduced into the market, these phones were deemed status symbols. They were only owned by the very well off. That’s why SIM cards at one point retailed for shs2500 ($25)!!

Some of the SIM cards belonging to various telcom companies in Kenya
Kenya’s changing mobile phone landscape

Kenya didn’t have enough landlines before mobile phones came along. Back then, it was very common to see long queues outside phone booths. Demand simply outstripped supply.

Some enterprising individuals even gave phone booth numbers as their “official” telephone numbers. It wasn’t uncommon for such people to spend hours near booths waiting for “important” calls from their clients!!

Telephone booth belonging to Telkom, formerly Kenya Posts & Telecommunications Company (KPTC)
Pictured:phone booth

With time it became clear that mobile phones weren’t just a luxury item, but a necessity. The sector grew beyond our wildest imagination. With this growth came new opportunities. Businessmen started selling ringtones, wallpapers, video clips, jokes, motivational quotes etc. This was mostly done via USSD.

The game changer(s)

In my opinion, there are four major events that led to the current tricky situation with mobile loans:

  • The proliferation of smartphones. In Kenya the most popular smartphone platform is Android. By far.
  • The invention of more affordable, higher quality smartphones. We have China to thank for this. If you own a Tecno, Vivo, Xiaomi, Gionee, ZTE, Huawei or Oppo, you should thank the Chinese.
  • Introduction of M-PESA. Before, it was possible to offer services via USSD. However, M-PESA took the financial services sector to the next level. It’s not just a product, but a platform. Hundreds, even thousands of other service providers have M-PESA pay bill numbers for easier transactions.
  • Introduction of CRB (Credit Reference Bureau).

So you see, these 4 combined to form the perfect opportunity for businessmen in the digital services space. Android provided a popular mobile OS that the masses could depend on. The Chinese introduced affordable, high-quality Android smartphones. Then Safaricom introduced M-PESA to make mobile transactions easier. Through CRB, lenders had concrete data about potential borrowers’ credit history. They could also estimate their ability to repay mobile loans.

Some popular Chinese smartphone brands
Top Chinese smartphone manufacturers

In fact, M-PESA became so popular that even banks rushed to sign deals with the giant telco. The same banks that used to make it extremely difficult for us common folk to open bank accounts. They now faced the very real possibility of being made obsolete. Their arrogance was no longer going to be tolerated.

Enter mobile loans

Among the many services introduced on the M-PESA platform was M-shwari. This is a collaboration between Safaricom and CBA (Commercial Bank of Africa). Through M-shwari, you can apply for a loan and receive it in a matter of minutes. No complicated loan application process required. You don’t need to fill forms, provide collateral or look for guarantors.

With M-shwari, all that is required is your mobile money transaction history. Coupled with a favorable CRB report, you’re guaranteed access to mobile loans.

With Mshwari’s success, other financial institutions rushed to provide mobile loans. KCB came up with KCB-MPESA, Barclays started TIMIZA, Equity introduced EAZZY banking, among many others. Apart from financial institutions, specialized mobile loans providers sprang up. These include Tala, Branch, Okash and Haraka.

Some popular mobile loans financial solutions in Kenya
Most popular fintech apps in Kenya

The above are just the most popular mobile loans providers. If you go to Google Playstore and type “mobile loans” in the search bar, you’ll get over 200 results. That’s over 200 apps, all claiming to offer mobile loans. Of course not all of them actually offer loans. Some have been accused of being nothing but scams. Nevertheless, the fact that they’re so many means the field must offer good returns.

So why are mobile loans evil?

Wow, hold on, I never said mobile loans are evil. Loans are a necessity, especially for businesses. Even governments regularly apply for credit facilities. Like the old saying goes though, too much of anything is bad for you. If used well, loans get us out of some pretty tight situations. If misused, they plunge us deeper into problems.

I know what you’re thinking; it’s a free country. Capitalism allows competition. Plus nobody forces anyone to apply for these mobile loans, therefore they can’t complain about being misled. You’re right about all that. These loans provide financial convenience for a majority of us.

M-pesa transactions outpace those of traditional banks
M-pesa store

For example, if you have an emergency you can just apply for a loan, sort out the issue then repay later. Compared to the traditional loan application process, this is way faster. Looked at it this way, mobile loans are lifesavers.

So what exactly is the problem?

My main issue with mobile loans is the largely unregulated way in which they’re offered. Yes, there are guidelines, but I feel they’re not thorough enough. For years after MPESA became a runaway success, regulators were confused on how to treat it. On the one hand, it’s a mobile telephony solution. On the other, it’s a banking solution.

This field nowadays is defined as fintech, that is financial technology. Though it’s better understood, regulations are still shaky. This is partly due to the speed with which technology changes. In Kenya, mobile loans providers have been largely left to their own devices.

Looking at the interest rates these apps charge, you get an idea of just how much they make in profits. Most don’t like referring to it as interest. Mshwari for example refers to its monthly 7.5% interest rate as a “processing fee”. Tala charges a whopping 15% per month. Calculated on an annual basis, that’s 180% interest!! Considering traditional loans attract annual interest rates of between 15 and 25%, mobile loans providers are just shylocks.

tala loan
kenyan mobile loans are disbursed in minutes

No Sir, we’re not shylocks

These financial institutions strongly detest being called shylocks. As stated earlier, they hide under the cover of capitalism. This simply means they provide a service that people require. You’re not forced to take loans with them, so you shouldn’t really complain about high interest rates.

They also cite the high risk involved with providing these mobile loans. The chances of people defaulting on such loans are high. This somehow justifies the high interest.

Bottom line

In my opinion, the reasons advanced are not entirely valid. For one, mobile loans apps have ready access to every borrower’s CRB report. This simply removes the “high risk” factor. If they give loans to defaulters, it’s by choice.

In as much as the “capitalist market” argument is valid, it doesn’t give companies leeway to take advantage of consumers. While profit is the main objective for doing business, ethical practices should also be upheld. Setting high interest rates simply because you can is unethical. Even capitalist countries have laws against usury, or predatory lending.

There are very few businesses that can reasonably pay back loans at an annualized interest rate of 180%. Furthermore, chances are any business that can make enough profits to repay a loan at an annual 180% interest rate doesn’t need a loan in the first place. This leaves desperate individuals to apply for such mobile loans.

Mobile loans ask for very high interest rates, only comparable to shylocks
the CRB is very effective

Some people have been sucked in so deep that they take these loans from multiple lenders. You might find yourself borrowing from Tala to repay M-shwari. Later borrow from Branch to repay Tala. Afterward borrow from TIMIZA to repay Branch. Then from KCB-MPESA to repay TIMIZA…and so on. This means you’ll always be stuck in that mobile loans cycle. You’ll have very low chances of ever fully repaying all these lenders.


If you’ve keenly read this article, you already know the solutions I’ll advance. They’re not all that complicated. They’re not designed to put mobile loans lenders out of business. Instead, if correctly implemented, they will go a long way in ensuring all stakeholders are happy. Off the top of my head, the three most effective solutions include:

  • Coming up with legislature specifically to regulate the fintech sector.
  • Limiting the interest rates that mobile loans lenders can charge.
  • Educating potential borrowers on the various hidden clauses they might be unaware of when signing up for such loans.

If implemented soberly, such solutions will not just benefit borrowers. Lenders will reap the rewards as well. In the long term, all stakeholders will be happy.

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