A boom in fintech in Kenya has led to many fintech lenders engaging in predatory lending practices. This observation by the Governor of the country’s Central Bank, has led him to recommend tougher regulations on these banks. Patrick Njoroge believes that without these, the country may suffer greatly.
Kenya has managed to adopt fintech and virtual banking solutions to help its unbanked population quite effectively, with over 90% now using some sort of mobile or virtual banking solution.
However, this boom in fintech has created a vast unregulated market that the government is struggling to keep up with. 20 fintech firms today use the same technology in Kenya to lend to their customers. They saddle borrowers with high-interest rates and trap them in a vicious cycle.
According to a study by Microsave, a consultancy that advises lenders on sustainable financial services, in the last 3 years, 2.7 million people in Kenya have been negatively listed on Kenya’s Credit Reference Bureaux.
Another problem for Kenya is that it is being treated as a test case for new fintechs, particularly US-based fintechs that are opening their offices in the country. Njoroge objects to Kenya being treated as a “guinea pig” for new technologies.