Sight Magazine – ‘Silicon Savannah’: Kenya targets lending apps that misuse customer data

Nairobi, Kenya
Thomson Reuters Foundation

The 14 days given to John Bigingi to repay a loan of 8,200 Kenyan shillings ($72) had barely passed when he started receiving text messages threatening to call the contacts on his phone and report him as defaulting .

“Silence means you don’t want to pay your loan which is already due,” said an SMS message sent by digital lender iPesa to Bigingi and shown to the Thomson Reuters Foundation.

“Take it seriously. Your 50 contacts and emergency contacts will start receiving 20 calls and 15 messages (at) exactly 6 p.m. Pay now to avoid embarrassment!!!” read the message written in capital letters.

The 42-year-old Kenyan taxi driver was horrified.

“I didn’t understand how they got my contacts, but soon after they called my closest relatives, including my brother and my wife, who were unaware of the loan,” he said. -he declares.

Ipesa did not respond to requests for comment.

Kenyan tax driver John Bigingi shows a text message sent by digital lender Ipesa to his phone in Nairobi, Kenya November 29, 2021. PHOTO: Thomson Reuters Foundation/Nita Bhalla.

Experiences like Bigingi’s are becoming more common as more cash-strapped Kenyans borrow from dozens of unregulated mobile lending apps, although a group representing the industry said these practices were limited to a few “rogue” lenders.

Offering fast, collateral-free credit to the largely unbanked, digital lenders have provided millions of Kenyans with access to finance to pay for everything from medical bills and school fees to capital for their businesses.

Some borrowers claim loan apps breach their data privacy by bombarding contacts stored on their phone with calls and messages when they default. Digital rights groups also accuse them of illegally sharing their customers’ personal information with third parties and charging exorbitant interest rates that push poor families into deeper debt.

Economists have hailed them for boosting financial inclusion in a country where only around 40% of people have a bank account, but many are also accused by customers and digital rights groups of using practices that go against the rules. ethics to take advantage of the poor.

Some borrowers claim loan apps breach their data privacy by bombarding contacts stored on their phone with calls and messages when they default.

Digital rights groups also accuse them of illegally sharing their customers’ personal information with third parties and charging exorbitant interest rates that push poor families into deeper debt.

Seeking to crack down on predatory lenders, Kenya approved legislation regulating the sector in December.

Kenya’s data commissioner, Immaculate Kassé, who has investigated complaints about lenders, said the legislation would reduce abuse of private data by lending apps and boost compliance with national data protection law , two years old.

“The [new law] requires digital lenders to comply with data protection law if they want to keep their licenses,” said Kassez, whose office is responsible for enforcing the 2019 law.

Kenyan taxi driver John Bigingi shows text messages sent to him by digital lender Ipesa in Nairobi, Kenya November 29, 2021. PHOTO: Thomson Reuters Foundation/Nita Bhalla.

Nicknamed “Silicon Savannah”, Kenya has become a major fintech player since telecom operator Safaricom launched its M-Pesa mobile money service in 2007 for people without network access. formal banking.

From a simple SIM-based money transfer app, M-Pesa has grown into a full-fledged financial service, offering loans and savings in collaboration with local banks.

In a country of 47 million people, there are more than 34.5 million active subscribers to mobile money transfer services, according to data from the Communications Authority of Kenya.

With the increase in mobile phone penetration, a plethora of fintech start-ups have emerged, keen to tap into the high demand for loans from low-income Kenyans who are struggling to access credit due to a lack of employment, guarantees or guarantors.

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More than 120 digital lenders operate in Kenya – some backed by Silicon Valley and Chinese investors – and can be found on various platforms including App stores and Google Play.

Using machine learning algorithms, the apps assess borrowers’ creditworthiness by analyzing personal data on their phones, including contacts, mobile money transactions, social media footprints and web history.

Within minutes, loans – ranging from 500 shillings to 50,000 shillings – are deposited and accessible on borrowers’ phones.

Demand for such loans has exploded: two million Kenyans used loan apps in 2019, up from 200,000 in 2016, according to central bank data.

A Kenyan woman shows a text message sent by the ZashLoan loan app in Nairobi, Kenya, November 19, 2021. PHOTO: Thomson Reuters Foundation/Dominic Kirui.

But the industry has been largely unregulated, allowing some digital lenders to engage in heavy-handed tactics.

“They called my boss and informed him that I had taken out a loan and he should remind me to pay,” said Susan Njeri, a 26-year-old accountant who took out a loan of 2,300 shillings on two weeks with an app called Opesa.

“I guess they have [his number] from my contacts,” Njeri said by phone from the central town of Meru.

Opesa said it did not respond to a request for comment.

Digital rights researchers say some apps sell customers’ personal information to data analytics and marketing companies and share defaulters’ details with credit reference companies, hurting their future credit ratings.

Kenya’s central bank has also expressed concern about excessive app interest rates – sometimes up to 400% a year – and the impact on rising household debt.

According to a 2021 survey by the Competition Authority of Kenya, around 77% of mobile loan borrowers faced penalties and were instructed to refinance their debts.

Digital rights groups said many Kenyans were unaware of their privacy rights and unaware that lending apps were illegally mining and marketing their personal information.

“Your data is taken, it’s used to profile you and get data about your contacts, and then resold. In return, what you get is an expensive loan that you can’t repay,” said Grace Mutung’u, manager. digital rights. expert at the Open Society Foundation.

“The terms and conditions are difficult to understand and need to be simplified. There needs to be public awareness,” she added.

Kevin Mutiso, chairman of the 25-member Digital Lenders Association of Kenya, said edging practices were limited to a handful of “rogue and unscrupulous lenders”.

“The intention of this technology is not to harm society, but unfortunately in any society there are some with noble intentions and others with predatory intentions,” Mutiso said. apologizing for the “horrific experiences” of some borrowers.

Under legislation approved last month, the central bank will regulate digital lenders and take action against those who use illegal tactics.

Lending apps will need to have their business models approved by the bank before receiving a licence, and will also be covered by data protection law – prohibiting the sharing of personal data without consent.

Those who break the laws could have their licenses revoked or face heavy fines and prison terms of up to three years.

But some privacy groups have questioned the government’s ability to enforce data protection law.

“We welcome any regulation that protects the privacy rights of individuals, but we really need better implementation of data protection law,” said Bridget Andere, Africa Policy Associate at the group. digital rights advocate Access Now.

“The government has simply not given enough importance to the issue of privacy.”

Data Commissioner Kassé disagreed, saying her office had the government support – including budget and independence – it needed to operate effectively.

Since its inception a year ago, the office has fulfilled its mandate to handle complaints, investigations and outreach, she said.

“At the time of my swearing in, I was the only employee of the Office,” she said. “It is said that Rome was not built in a day, nor was the Office of the Data Protection Commissioner.”