Out of every two Kenyans who own a mobile phone, one of them ever has taken digital credit making it the favourite form of borrowing for millions, despite a credit crunch.
A study has revealed that up to 55 per cent of Kenyans with registered mobile phones had taken formal credit by 2017, which is 35 per cent more compared to the number of people who had taken loans in 2009.
Communication Authority estimates more than 40 million Kenyans own mobile phones out of a population of 48 million which means 22 million Kenyans have taken up mobile credit.
That in five years, digital credit facilities enabled millions of Kenyans to access formal credit, most of them for the first time through 25 digital lending products since M-Shwari was launched in 2012.
The study by Financial Sector Deepening Kenya (FSD Kenya) says increased uptake of mobile loans has been aided by mobile lending apps, which have made it easier to access loans compared to the traditional methods.
Mobile banking apps such as M-Shwari, Equitel, M-Co-op Cash and KCB M-Pesa have transformed the way Kenyans access loans and consumers no longer need to fill lengthy paperwork, pledge collateral, or undergo vetting by mean looking credit officers.
Other standalone mobile lending apps such as Tala (formerly Mkopo Rahisi), Branch, Saida and Zidisha and Mombo Mobile, which also issue short-term loans via mobile money at a fee are also among favourite new breed of lenders.
The study further reveals that in 2017 alone, about 18 per cent of adults who owned mobile phones were borrowing from digital loan providers, which surpassed the number of Kenyans borrowing from friends, family or shopkeepers.
The potential beneficiary of digital loans were low-income borrowers who usually don’t have formal credit history.
“It helps the poor manage unpredictable income and cope with shocks that require an immediate response—like illness or drought,” the study said.
However, while mobile phone proliferates rapidly, not many studies have been done to find out the social and economic impacts and the FSD report warns that the country needs to be particularly mindful of the potential harm to both consumers and the economy should debt prove unmanageable.
Prof Tavneet Suri of the MIT Sloan School of Management who was hired by FSD Kenya to evaluate the economic impact of M-Shwari loans, including consumption, asset accummulation and risk management found that access to M-Shwari’s instant loans increased the ability to pay for education.
Other outcomes such as savings, employment and consumption were not affected, suggesting that M-Shwari has mostly helped bridge cash shortages rather than invest and build assets for the future.