19 ms·

Companies flooding Kenya with apps offering high-interest loans

105 points by kaboro 7y ago

jfk13 7y ago
How unsurprising: Silicon Valley high-flyers make money comfortably from their flashy offices, while the impoverished masses at the bottom of the pyramid, without resources and options, are exploited as usual. But of course, "the company doesn’t condone" exploitative practices, and will investigate. Must be just a few bad apples spoiling an otherwise-worthy endeavour.
- richajak 7y ago
  I understand that most of successful startups can grow big as they manage to exploit weak human nature, e.g addiction, FOMO, etc. It is used by those giants in SV. However, it is disheartening that they rebranded payday loan as fintech solution. Those in developing countries do not have long history in dealing with high interest pay day loan, unlike many payday shops found in many North America strip malls. It may be their first easy access to money without collaterals.
- will_wheat_on 7y ago
  Their interest rate is exploitative - 15% per month. So if you borrowed $100 at the beginning of the year, you'd need to repay $280 with $180 going to interest alone. This is their policy from their own website https://talasupport.zendesk.com/hc/en-us/articles/360021853332-What-kinds-of-fees-and-interest-does-Tala-charge- https://talasupport.zendesk.com/hc/en-us/articles/3600218533...
  - fleetingmoments 7y ago
    No. The 15% is a flat fee. The penalty for late repayment is an additional 8%. It doesn't compound.
Ozzie_osman 7y ago
This sounds horrible and predatory, and it's even worse that occurs under the guise of "financial inclusion". Yes, having access to credit can be a good thing, but using big data to give loans to people who have often never been exposed to the compounding nature of high-interest loans, and who might be desperate sounds disastrous. They're not only use data to _price_ loans, but also to test messaging, timing, etc... same Silicon Valley playbook. I grew up in a "developing" country at a time when banks started rolling out high-interest loans, and where defaulting on a loan would mean prison time. People would take out loans they knew they had no ability to repay. And sometimes it wasn't to put food on the table or pay for medical care—it was to help their kid get married, etc (it might sound silly, but sometimes upholding your family/kids honor or status can be as important as any living necessity).
- bradleykingz 7y ago
  And you're completely right. As someone that lives in Kenya and has used these apps, I can count in one hand the number of apps that I consider 'ethical.' The kinds of interest rates they charge are seriously absurd and some go as far as charging 10% interest per day that you're late paying the loan :/ On the bright side, while there are over fifty of these shady apps, most loans (including on mobile) - something around 84% of them, if I remember correctly, are still issued by banks. But overall, another issue it raises is the reason Kenya (I'm not sure about other African countries) is really slow in innovation in the software field. Tala was one of the first loan apps to be released and it remained like that barely for months. The next thing you know, there are over a dozen of them and new ones keep getting released every year! It's mad! The same thing happened with SportPesa, a gambling platform that later quit the Kenyan market. Once people realized SportPesa was profitable, the number of copycats went through the roof. Competition isn't a bad thing, sure, but once they really hit the mainstream, it's insane how many people would rather copy something that works than try something new themselves.
  - sosborn 7y ago
    > it's insane how many people would rather copy something that works than try something new themselves. Is it though? If an idea is proven to be profitable it seems to follow that the idea is worth pursuing.
westpfelia 7y ago
Opera web browser got in trouble with some of this last year. Its super shitty. I think the most I ever heard of interest rates going was near 450%? Honestly how shitty do you have to be to think that people who have to take out a loan can afford to pay you back 2, 3, or 4 times the amount they request? Its evil.
- chrisjc 7y ago
  Wait a second... You mean Opera got in trouble for facilitating such activity through predatory lending web-sites it renders, or that Opera the browser company got in trouble for predatory lending? edit: i guess i should have read the whole article... opera released a lending app.
will_wheat_on 7y ago
It's actually a lot worse than it sounds. There are no loan apps for iOS simply because iOS won't give you access to messages. These companies read your messages and at times call people you know to collect. https://nairobinews.nation.co.ke/news/loans-app-finds-a-cheeky-way-of-dealing-with-defaulters https://nairobinews.nation.co.ke/news/loans-app-finds-a-chee... The interest rates are so high that I don't think they bother with credit scoring.
- gruez 7y ago
  The article says that the lender is calling the debtor's contacts. Doesn't iOS allow apps to access the user's contact list? I definitely remember seeing "App xyz would like to access your contacts" prompts before.
dvtrn 7y ago
It says it can reach those who’ve been ignored by banks, because its software generates instant credit ratings from data scraped off prospective borrowers’ phones Wow...
- bradleykingz 7y ago
  This makes it sound super impressive, but they really just generate a credit report from your Mpesa transaction messages (these are sent back to you via SMS)
  - dvtrn 7y ago
    No it sounds super disgusting. Personal data capitalism rearing its head in the third world and smaller, developing nations and the complete ethical bankruptcy of these purported interest rates is disgusting. (Also fwiw this is the second comment of yours I had to vouch and Unflag, and I wonder who is doing this and why).
    - icebraining 7y ago
      > fwiw this is the second comment of yours I had to vouch and Unflag, and I wonder who is doing this and why I'm guessing it's the anti-spam mechanisms of the site. Any account with a low number of comments is susceptible to it.
duxup 7y ago
I wonder if it plays out like a sort of pyramid scheme where the company offers enough loans to get them in trouble then they have to borrow from someone else ... now that company has exited with their profits.
- jfk13 7y ago
  There's also a screenshot indicating that borrowers are incentivised (offered a small reward) if they push these high-interest loans on others as well. Multi-level marketing meets loan sharking.
dsalzman 7y ago
What happened to the buzz around "micro loans" and giving money to people in need at fair terms?
- wmeredith 7y ago
  It was PR
  - rodonn 7y ago
    There were a lot of well meaning non-profits who thought that microcredit loans to low income people in the developing world, unfortunately some of the results didn't work out as well as they hoped.
- rodonn 7y ago
  The problem is that the actuarily "fair" price of these loans is very high because the risk of non-repayment is very high. If 25% of people don't pay back a loan, then you need an interest rate of at least 33% on the 75% who do pay you back in order to break even. The only solutions are (a) to try to do a better job of identifying who will/won't pay you back or (b) to do more to make sure that people do pay you back. (a) has the disadvantage that you aren't able to help a lot of people who most need the help. (b) can easily become exploitative as you increase the pressure on people who are at risk of defaulting on their loans.
  - dublinben 7y ago
    If the interest rates have to be that high, maybe these loans just shouldn't be made. There's got to be a better way to "help" these people than saddling them with predatory loans.
  - polymatter 7y ago
    or (c) eat the loss in order to gain market share. Thats the SV way!
seibelj 7y ago
Banks and credit card companies sell all of your transaction data for similar analytics purposes. Do a few google searches for "mortgage refinancing", then click a few blogs, and watch as you are followed by mortgage ads for months. Kenya is less formalized, so they derive the data from phones rather than a backhanded way via your payments history. I'm not defending this practice, just letting you know that the same thing happens whether you are rich in a developed country or poor in a developing country.
nabnob 7y ago
This reminds me of the crypto currency startups that claimed crypto currency would help people in impoverished countries find financial freedom away from their local banks, when in reality these predatory companies just wanted to use poor people's desperation to sell them crypto. I'm automatically skeptical of any vc-funded startup that claims it's going to help impoverished people, including those funded by Y Combinator.
- n0rbwah 7y ago
  They're going to help the impoverished founders to become millionaires.
godtoldmetodoit 7y ago
If you'd like to help prevent people needing to use such a service, check out givedirectly.org Non-profit that just hands out cash on a regular basis to those selected to do with as they choose with 0 conditions.
iandanforth 7y ago
I find usury to be one of the most pernicious, corrosive, and abhorrent tolerated behaviors in modern society. Usury was a sin until the power of debt overrode the moral authority of those who originally condemned it (https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-become-respectable-finance https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-be...). Instead of funding these morally bankrupt and self-interested startups, let's support effective generosity. Give today: https://www.givedirectly.org/ https://www.givedirectly.org/
- thefounder 7y ago
  >> Instead of funding these morally bankrupt and self-interested startups, let's support effective generosity. Give today: How is that sustainable? A low interest loan would seem more reasonable. And who wants free money?
  - dint 7y ago
    This is a long-contested debate in the field of international development. The model you propose is called microfinance, and has been attempted for decades. Here's a summary of the issue: https://blog.givewell.org/2013/01/04/cash-transfers-vs-microloans/ https://blog.givewell.org/2013/01/04/cash-transfers-vs-micro... In short: - Microfinance programs that grant small, low-interest loans aren't sustainable. Administering those programs (especially in developing countries) carries massive overhead that isn't offset by revenue from interest. - Furthermore, there isn't strong evidence that low-interest loans actually improve their recipients' well-being on net (considering the harm that indebtedness can cause). - Evidence (from randomly-controlled trials) shows that direct cash transfers are effective in improving recipients' well-being on a number of metrics, and that recipients do not spend them on "sin goods" like alcohol or tobacco[0]. [0] https://www.princeton.edu/haushofer/publications/Haushofer_Shapiro_UCT_QJE_2016.pdf https://www.princeton.edu/haushofer/publications/Haushofer_S...
  - rtkwe 7y ago
    It's sustainable because the amount of money that's life changing to people in the poorer parts of the world are a moderate purchase to people in the richer parts. Additionally the benefits last way longer than just the initial purchases made with the money, by giving it directly to people instead of giving them things it's injecting cash into the local economy where it circulates multiple times going through multiple people's hands. There's studies showing this kind of direct giving and the economic activity it generates is effective at improving people's lives. The goal of GiveDirectly is charitable after all so they're not trying to extract value from the population. > And who wants free money? Are you trying to say people won't accept free money?
tempsy 7y ago
My understanding is that Kiva microloans also have very high interest rates, but haven't necessarily heard anyone critique their business model.
aganame 7y ago
This needs to be highly illegal, globally, and enforced by the UN. Which implies that the UN needs to be made more powerful.
- adz_6891 7y ago
  The IFC and World Bank appear to hail Tala (and similar organisations) as a top "fintech firm innovating in financial inclusion" [1] These organisations may be more likely to give companies like Tala support than routing them out, unfortunately. [1] https://www.european-microfinance.org/publication/financial-inclusion-digital-age https://www.european-microfinance.org/publication/financial-...
tengbretson 7y ago
Does Kenya have a strong, nationally-ubiquitous system for individual credit ratings? If not, then the joke might end up being on the companies giving out cash and not on the people taking predatory loans.
apta 7y ago
Entrapping users with interest bearing loans is modern day slavery.
deleted 7y ago
[deleted]
thecleaner 7y ago
I dont understand why African nations dont gang up and get rid of ths whole free trade bullshit. This nonsense has given rise to so many unethical industries. Be it the charities that collect donated clothes and sell it in Africs devastating their local industries or these lending apps or the so called poverty tourism. I hope these countries can band together and get rid of this pludering behaviour.
deleted 7y ago
[deleted]
Nasrudith 7y ago
I can't help but wonder if the shady companies are going to be scammed to hell and back by the more savvy of their clients. I don't know if the credit agency threats are genuine or not - I lean towards not generally given the trends western debt collectors making shit up even when it is illegal. What is stopping the user from taking out loans and running off essentially? Burners may be more expensive relatively in Kenya but it could still be profitable enough to tempt someone into serial bad loan taking even if it /actually/ forced them to live on the run. It brings to mind a darker escalation of trying to contract people out as local debt collectors but that sort of thing tends to cause even cynical and corrupt governments to shut it down quickly for threatening the monopoly on violence.
fleetingmoments 7y ago
How do they get to an 180% annualised interest rate? Tala doesn't charge interest, it charges a flat fee of around 15%. If you don't pay on time you get charged another once-off late payment penalty. It doesn't increase after that. So if you borrow $100 and repay $115, it's 15%. If you take out another loan immediately every time you end up borrowing $1200 over the year and repaying $1380. Still 15%.
Phoebreeds 7y ago
I was at the end of my rope and profoundly desperate to turn my credit score around. After speaking with Anonymous Credit Repairer, I felt comfortable and was willing to give them the opportunity to assist me and truth be told, I am pleased with the results they provided. My credit score did increase speedily; the communication between myself and them was excellent, fast and to the point. Very focused on what’s important. YOUR CREDIT! They also offer various types of loans to individuals with either bad or good credit with 2% interest rate. Also i, my family and friends benefits massively from their loan service. Utilize their services by contacting anonymouscreditrepairer at gmail dot com

105 points by kaboro 7y ago

How unsurprising: Silicon Valley high-flyers make money comfortably from their flashy offices, while the impoverished masses at the bottom of the pyramid, without resources and options, are exploited as usual. But of course, "the company doesn’t condone" exploitative practices, and will investigate. Must be just a few bad apples spoiling an otherwise-worthy endeavour.

richajak 7y ago
I understand that most of successful startups can grow big as they manage to exploit weak human nature, e.g addiction, FOMO, etc. It is used by those giants in SV. However, it is disheartening that they rebranded payday loan as fintech solution. Those in developing countries do not have long history in dealing with high interest pay day loan, unlike many payday shops found in many North America strip malls. It may be their first easy access to money without collaterals.
will_wheat_on 7y ago
Their interest rate is exploitative - 15% per month. So if you borrowed $100 at the beginning of the year, you'd need to repay $280 with $180 going to interest alone. This is their policy from their own website https://talasupport.zendesk.com/hc/en-us/articles/360021853332-What-kinds-of-fees-and-interest-does-Tala-charge- https://talasupport.zendesk.com/hc/en-us/articles/3600218533...
- fleetingmoments 7y ago
  No. The 15% is a flat fee. The penalty for late repayment is an additional 8%. It doesn't compound.

Ozzie_osman 7y ago

This sounds horrible and predatory, and it's even worse that occurs under the guise of "financial inclusion". Yes, having access to credit can be a good thing, but using big data to give loans to people who have often never been exposed to the compounding nature of high-interest loans, and who might be desperate sounds disastrous. They're not only use data to _price_ loans, but also to test messaging, timing, etc... same Silicon Valley playbook. I grew up in a "developing" country at a time when banks started rolling out high-interest loans, and where defaulting on a loan would mean prison time. People would take out loans they knew they had no ability to repay. And sometimes it wasn't to put food on the table or pay for medical care—it was to help their kid get married, etc (it might sound silly, but sometimes upholding your family/kids honor or status can be as important as any living necessity).

bradleykingz 7y ago
And you're completely right. As someone that lives in Kenya and has used these apps, I can count in one hand the number of apps that I consider 'ethical.' The kinds of interest rates they charge are seriously absurd and some go as far as charging 10% interest per day that you're late paying the loan :/ On the bright side, while there are over fifty of these shady apps, most loans (including on mobile) - something around 84% of them, if I remember correctly, are still issued by banks. But overall, another issue it raises is the reason Kenya (I'm not sure about other African countries) is really slow in innovation in the software field. Tala was one of the first loan apps to be released and it remained like that barely for months. The next thing you know, there are over a dozen of them and new ones keep getting released every year! It's mad! The same thing happened with SportPesa, a gambling platform that later quit the Kenyan market. Once people realized SportPesa was profitable, the number of copycats went through the roof. Competition isn't a bad thing, sure, but once they really hit the mainstream, it's insane how many people would rather copy something that works than try something new themselves.
- sosborn 7y ago
  > it's insane how many people would rather copy something that works than try something new themselves. Is it though? If an idea is proven to be profitable it seems to follow that the idea is worth pursuing.

westpfelia 7y ago

Opera web browser got in trouble with some of this last year. Its super shitty. I think the most I ever heard of interest rates going was near 450%? Honestly how shitty do you have to be to think that people who have to take out a loan can afford to pay you back 2, 3, or 4 times the amount they request? Its evil.

chrisjc 7y ago
Wait a second... You mean Opera got in trouble for facilitating such activity through predatory lending web-sites it renders, or that Opera the browser company got in trouble for predatory lending? edit: i guess i should have read the whole article... opera released a lending app.

will_wheat_on 7y ago

It's actually a lot worse than it sounds. There are no loan apps for iOS simply because iOS won't give you access to messages. These companies read your messages and at times call people you know to collect. https://nairobinews.nation.co.ke/news/loans-app-finds-a-cheeky-way-of-dealing-with-defaulters https://nairobinews.nation.co.ke/news/loans-app-finds-a-chee... The interest rates are so high that I don't think they bother with credit scoring.

gruez 7y ago
The article says that the lender is calling the debtor's contacts. Doesn't iOS allow apps to access the user's contact list? I definitely remember seeing "App xyz would like to access your contacts" prompts before.

dvtrn 7y ago

It says it can reach those who’ve been ignored by banks, because its software generates instant credit ratings from data scraped off prospective borrowers’ phones Wow...

bradleykingz 7y ago
This makes it sound super impressive, but they really just generate a credit report from your Mpesa transaction messages (these are sent back to you via SMS)
- dvtrn 7y ago
  No it sounds super disgusting. Personal data capitalism rearing its head in the third world and smaller, developing nations and the complete ethical bankruptcy of these purported interest rates is disgusting. (Also fwiw this is the second comment of yours I had to vouch and Unflag, and I wonder who is doing this and why).
  - icebraining 7y ago
    > fwiw this is the second comment of yours I had to vouch and Unflag, and I wonder who is doing this and why I'm guessing it's the anti-spam mechanisms of the site. Any account with a low number of comments is susceptible to it.

duxup 7y ago

I wonder if it plays out like a sort of pyramid scheme where the company offers enough loans to get them in trouble then they have to borrow from someone else ... now that company has exited with their profits.

jfk13 7y ago
There's also a screenshot indicating that borrowers are incentivised (offered a small reward) if they push these high-interest loans on others as well. Multi-level marketing meets loan sharking.

dsalzman 7y ago

What happened to the buzz around "micro loans" and giving money to people in need at fair terms?

wmeredith 7y ago
It was PR
- rodonn 7y ago
  There were a lot of well meaning non-profits who thought that microcredit loans to low income people in the developing world, unfortunately some of the results didn't work out as well as they hoped.
rodonn 7y ago
The problem is that the actuarily "fair" price of these loans is very high because the risk of non-repayment is very high. If 25% of people don't pay back a loan, then you need an interest rate of at least 33% on the 75% who do pay you back in order to break even. The only solutions are (a) to try to do a better job of identifying who will/won't pay you back or (b) to do more to make sure that people do pay you back. (a) has the disadvantage that you aren't able to help a lot of people who most need the help. (b) can easily become exploitative as you increase the pressure on people who are at risk of defaulting on their loans.
- dublinben 7y ago
  If the interest rates have to be that high, maybe these loans just shouldn't be made. There's got to be a better way to "help" these people than saddling them with predatory loans.
- polymatter 7y ago
  or (c) eat the loss in order to gain market share. Thats the SV way!

seibelj 7y ago

Banks and credit card companies sell all of your transaction data for similar analytics purposes. Do a few google searches for "mortgage refinancing", then click a few blogs, and watch as you are followed by mortgage ads for months. Kenya is less formalized, so they derive the data from phones rather than a backhanded way via your payments history. I'm not defending this practice, just letting you know that the same thing happens whether you are rich in a developed country or poor in a developing country.

nabnob 7y ago

This reminds me of the crypto currency startups that claimed crypto currency would help people in impoverished countries find financial freedom away from their local banks, when in reality these predatory companies just wanted to use poor people's desperation to sell them crypto. I'm automatically skeptical of any vc-funded startup that claims it's going to help impoverished people, including those funded by Y Combinator.

n0rbwah 7y ago
They're going to help the impoverished founders to become millionaires.

godtoldmetodoit 7y ago

If you'd like to help prevent people needing to use such a service, check out givedirectly.org Non-profit that just hands out cash on a regular basis to those selected to do with as they choose with 0 conditions.

iandanforth 7y ago

I find usury to be one of the most pernicious, corrosive, and abhorrent tolerated behaviors in modern society. Usury was a sin until the power of debt overrode the moral authority of those who originally condemned it (https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-become-respectable-finance https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-be...). Instead of funding these morally bankrupt and self-interested startups, let's support effective generosity. Give today: https://www.givedirectly.org/ https://www.givedirectly.org/

thefounder 7y ago
>> Instead of funding these morally bankrupt and self-interested startups, let's support effective generosity. Give today: How is that sustainable? A low interest loan would seem more reasonable. And who wants free money?
- dint 7y ago
  This is a long-contested debate in the field of international development. The model you propose is called microfinance, and has been attempted for decades. Here's a summary of the issue: https://blog.givewell.org/2013/01/04/cash-transfers-vs-microloans/ https://blog.givewell.org/2013/01/04/cash-transfers-vs-micro... In short: - Microfinance programs that grant small, low-interest loans aren't sustainable. Administering those programs (especially in developing countries) carries massive overhead that isn't offset by revenue from interest. - Furthermore, there isn't strong evidence that low-interest loans actually improve their recipients' well-being on net (considering the harm that indebtedness can cause). - Evidence (from randomly-controlled trials) shows that direct cash transfers are effective in improving recipients' well-being on a number of metrics, and that recipients do not spend them on "sin goods" like alcohol or tobacco[0]. [0] https://www.princeton.edu/haushofer/publications/Haushofer_Shapiro_UCT_QJE_2016.pdf https://www.princeton.edu/haushofer/publications/Haushofer_S...
- rtkwe 7y ago
  It's sustainable because the amount of money that's life changing to people in the poorer parts of the world are a moderate purchase to people in the richer parts. Additionally the benefits last way longer than just the initial purchases made with the money, by giving it directly to people instead of giving them things it's injecting cash into the local economy where it circulates multiple times going through multiple people's hands. There's studies showing this kind of direct giving and the economic activity it generates is effective at improving people's lives. The goal of GiveDirectly is charitable after all so they're not trying to extract value from the population. > And who wants free money? Are you trying to say people won't accept free money?

tempsy 7y ago

My understanding is that Kiva microloans also have very high interest rates, but haven't necessarily heard anyone critique their business model.

aganame 7y ago

This needs to be highly illegal, globally, and enforced by the UN. Which implies that the UN needs to be made more powerful.

adz_6891 7y ago
The IFC and World Bank appear to hail Tala (and similar organisations) as a top "fintech firm innovating in financial inclusion" [1] These organisations may be more likely to give companies like Tala support than routing them out, unfortunately. [1] https://www.european-microfinance.org/publication/financial-inclusion-digital-age https://www.european-microfinance.org/publication/financial-...

tengbretson 7y ago

Does Kenya have a strong, nationally-ubiquitous system for individual credit ratings? If not, then the joke might end up being on the companies giving out cash and not on the people taking predatory loans.

apta 7y ago

Entrapping users with interest bearing loans is modern day slavery.

deleted 7y ago

[deleted]

thecleaner 7y ago

I dont understand why African nations dont gang up and get rid of ths whole free trade bullshit. This nonsense has given rise to so many unethical industries. Be it the charities that collect donated clothes and sell it in Africs devastating their local industries or these lending apps or the so called poverty tourism. I hope these countries can band together and get rid of this pludering behaviour.

deleted 7y ago

[deleted]

Nasrudith 7y ago

I can't help but wonder if the shady companies are going to be scammed to hell and back by the more savvy of their clients. I don't know if the credit agency threats are genuine or not - I lean towards not generally given the trends western debt collectors making shit up even when it is illegal. What is stopping the user from taking out loans and running off essentially? Burners may be more expensive relatively in Kenya but it could still be profitable enough to tempt someone into serial bad loan taking even if it /actually/ forced them to live on the run. It brings to mind a darker escalation of trying to contract people out as local debt collectors but that sort of thing tends to cause even cynical and corrupt governments to shut it down quickly for threatening the monopoly on violence.

fleetingmoments 7y ago

How do they get to an 180% annualised interest rate? Tala doesn't charge interest, it charges a flat fee of around 15%. If you don't pay on time you get charged another once-off late payment penalty. It doesn't increase after that. So if you borrow $100 and repay $115, it's 15%. If you take out another loan immediately every time you end up borrowing $1200 over the year and repaying $1380. Still 15%.

Phoebreeds 7y ago

I was at the end of my rope and profoundly desperate to turn my credit score around. After speaking with Anonymous Credit Repairer, I felt comfortable and was willing to give them the opportunity to assist me and truth be told, I am pleased with the results they provided. My credit score did increase speedily; the communication between myself and them was excellent, fast and to the point. Very focused on what’s important. YOUR CREDIT! They also offer various types of loans to individuals with either bad or good credit with 2% interest rate. Also i, my family and friends benefits massively from their loan service. Utilize their services by contacting anonymouscreditrepairer at gmail dot com