There is undoubtedly reason to be positive about the boom of FinTech across Africa.
Regions of the continent have made a technological leapfrog over the rest of the world with over 70% of Kenyan adults using mobile money platforms in 2017.
As well as contributing to economic growth, these disruptive technologies are making it easier for the unbanked to borrow, save and insure.
However, there is a darker truth to all this disruption, and it could be that this trend is currently doing more harm than good. That it has never been easier to access credit is both a blessing and a curse.
A broken system
The extent of the ‘lending craze’ taking place in Kenya today can be articulated by the fact that a simple “lending app Kenya” search currently generates over 200 results in the Google Play store.
A lack of options is no longer a problem. But as has been observed by the leaders of Microsave, there has been far too much celebration of the quantity of loans, and not enough focus on the quality.
High interest rates, aggressive marketing, complicated T&C’s and unnuanced “yes or no” credit scoring systems are all contributing to a broken system, and the data on this is clear.
2.7 million were negatively listed on Kenyan’s credit bureaux as of May 2018. 400,000 of these listings were for a default on a loan of less than $2.
And of many of these borrowers do not understand why, with Transunion CEO Billy Owino recently stating:
“Most of the borrowers do not know how they got blacklisted. We get like 200 calls daily from individuals in this category asking how they ended up in the blacklist.”
It would be fair to say, that as it stands, the current digital lending space is not serving those who need it most.
Our role as Pezesha
Our vision as a company is financial inclusion for all. If we are to stay true to this then we have a responsibility to ensure that our customers are borrowing safely. And this starts with financial education.
Through the data we have gathered on borrowers, there is clear evidence of unhealthy financial management practises, including gambling, loan stacking (taking out one loan to pay another), and over indebtedness.
If we are to offer borrowers quick and easy access to credit, we must ensure that they are using this credit responsibly, in a way that empowers them, rather than the reverse.
All borrowers who go through our marketplace receive financial education before a loan is granted, and this month we are proud to launch our formal curriculum Pezesha Academy.
This curriculum has been prepared using data that we have gathered from several months of engaging with communities, and interacting with over 20,000 individuals. It covers areas such as savings and investment, effective debt management, how to improve one’s credit score, what are CRBs and their role and much more. In the coming weeks we will be publishing blog posts sharing our key tips, practical experiences and principles in these areas.
In addition to our financial education, the data centralisation and sharing economy that our marketplace provides, allows us to make much more informed credit decisioning and also gather a holistic view of the borrower. This leads to much higher quality loans, offers competitive pricing to borrowers that they can afford, and all contributes to a healthy lending platform.
But this is not about us. This is about the people we are trying to empower, and we cannot do it alone.
Our vision is a movement of individuals and institutions promoting and enabling widespread and well-informed responsible financial practices that benefit all.
So we need your help in starting this movement. If you are passionate about empowering the underserved we want to hear from you. Let’s talk. Let’s work together.
Yes, the rise of FinTech can have tremendous impact for our continent. If used wisely, credit can be a wealth creation tool which has the potential to lift people out of poverty, create jobs and reduce inequality. But as we have seen, it can also go the other way, and if we are to leverage the opportunities before us for good, then a financially enlightened marketplace is critical.
Join us so we can turn financial illiteracy into financial literacy, negative listings into positive listings, and in doing so, create healthy marketplaces that serve not only borrowers and lenders, but our society as a whole.