A new report has revealed that majority of consumers with access to formal financial accounts are still unable to access digital credit due to affordability issues.
The Three-Billion-Person Challenge by the Atlantic Council funded by Tala indicates that at least 51pc of adults equivalent to 2.5 billion people in low and middle income economies including Kenya are unable to borrow formally, a factor exacerbated by costly credit.
“About half of those with mobile phones named the biggest barrier to financial inclusion as not having enough money; in other words, affordability was the primary issue,” the council states in the report.
According to findings by the Council consumers there have been cases of exploitative pricing practices where consumers are hit with hidden fees, inadequate disclosure of prices and taxes.
“Affordability is an even bigger issue for women than men because their incomes are typically lower and they spend considerable time on unpaid care work,” reads the report.
Kenya has been on the forefront oin regulating the digital lending space, to cushion consumers from exorbitant interest rates through the Digital Credit Providers Regulation.
However, the Non-Deposit Taking Credit Providers which has been proposed by the Central Bank of Kenya is expected to further strengthen the sector.
“This framework (DCP Regulation) had left out other players that essentially doing the same activity but not on a digital platform and so there remain other people operating a grey area. So the issue were to be resolved by this framework ended up not being resolved,” said Kennedy Osore, Head of External Affairs at Tala.
Currently, CBK has licensed some 150 digital credit providers while at least 100 are awaiting review and approval.
“Our expectations are we will see digital lenders continue to grow. Majority of lending now is coming from the digital lending sector. As of last year, the size of loan book within dc space surpassed Micro Finance institution (MFIs.),” said Annstella Mumbi, Tala General Manager.
The council further advices authorities to double down on effective enforcement mechanisms so that consumers have recourse as the market evolves.
