The National Assembly’s Finance and National Planning Committee has recently launched an investigation into the lending practices of telecommunication companies (telcos) and buy-now-pay-later (BNPL) providers.

This investigation raises concerns about potential licensing issues, unfair practices, cybersecurity threats, and the exploitation of vulnerable populations.

Mobile loans and buy-now-pay-later (BNPL) platforms have become an essential part of the Kenyan financial landscape.

Offering convenient access to credit, these platforms have transformed the way many Kenyans manage their finances.

Telco Dominance, Regulatory Compliance, Security, and Boda Boda Concerns

Safaricom’s M-Pesa platform dominates the mobile money market, and its lending products like M-Shwari, Fuliza, and KCB M-Pesa are at the heart of the investigation.

The committee is investigating whether these telco-offered loans adhere to proper licensing regulations, assess consumer protection practices, and investigate the growing problem of SIM-swap fraud.

Cybercriminals target telco customers by fraudulently obtaining new SIM cards linked to their accounts, potentially enabling them to access mobile money and loans.

A critical aspect of the investigation focuses on the potential exploitation of boda boda riders by some BNPL providers offering asset financing specifically for motorcycles.

These riders, seeking to improve their livelihoods, are allegedly being deceived into adopting predatory lending practices.

One key concern is the potential lack of transparency surrounding loan terms, fees, and repayment structures offered by telco lending platforms and some BNPL providers.

Borrowers might find themselves disadvantaged by unclear information, making it difficult to make informed financial decisions.

The investigation looks into the possibility of predatory lending practices. Here, the worry lies in targeting vulnerable populations with high-interest loans that can lead to a cycle of debt and financial instability.

The committee has specifically noted the exploitation of young and low-income Kenyans, particularly in the boda boda sector.

Deceitful practices and exorbitant hidden fees, interest rates, and penalties can significantly burden these borrowers.

BNPL and Inflated Costs for Boda Bodas

For instance, some BNPL startups require a Sh12,000 deposit followed by daily payments of Sh400 for 18 months on a motorcycle.

While this might seem manageable, the total cost becomes incredibly inflated after factoring in hidden fees. After 18 months, the rider would have paid a staggering Sh211,200, not including M-Pesa transaction charges.

Considering the market price of these motorcycles falls between Sh100,000 and Sh130,000, the rider ends up paying nearly double the actual value due to exorbitant fees and interest.

A Look at BNPL Providers in Kenya:

The investigation is not limited to telco-linked lending. The committee is also examining the practices of various BNPL providers operating in Kenya, including established names like M-Kopa, Lipa Later, Aspira, Faraja, Watu, NCBA Loop, FlexPay, and Spotit.

These platforms offer short-term installment loans, allowing consumers to pay for purchases over time. However, ensuring transparency and responsible lending practices within the BNPL sector is crucial.

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The Committee’s Goals and Potential Outcomes

The National Assembly’s Finance and National Planning Committee aims to determine if telco and BNPL lending activities comply with existing regulations, assess the level of consumer protection offered, and investigate the security risks associated with SIM-swap fraud.

Based on their findings, they might recommend reforms to ensure a fair, responsible, and secure lending environment.

Policy changes, stricter regulations for telco and BNPL activities, measures to combat SIM-swap fraud, and protections for vulnerable borrowers like boda boda riders could be potential outcomes of this investigation.

A Call for a Balanced Financial Ecosystem

Responsible lending practices, along with effective cybersecurity measures, are crucial for a healthy mobile money and BNPL ecosystem in Kenya.

The National Assembly’s investigation serves as a positive step towards ensuring transparency, fairness, and security for Kenyan consumers.

Additionally, safeguards for vulnerable populations like boda boda riders are essential to prevent them from falling prey to exploitative lending practices.