6 ms·

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,

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.
- Ozzie_osman 7y ago
  I grew up in a North African country (and was part of and remain involed in the tech scene there till now), and Kenya is actually viewed pretty favorably on the tech/fintech side... I think in no small part due to M-Pesa's success.
- gruez 7y ago
  > 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 :/ Naive libertarian question: is this an issue when the rate is clearly conveyed to the consumer, and it's the rate needed to make a profit given the high default rate and/or overhead? That interest rate should be close to the market clearing rate (ie. minimal profit), assuming it's not too difficult to get into the lending space.
  - saint_fiasco 7y ago
    The only time it makes sense to charge super high interest is if you expect lots of customers will default. That means you already know your business will end up causing lots of people to be in debt forever. If you choose to go ahead anyway, obviously people are going to think you are evil.
    - DuskStar 7y ago
      It also means that many people think that your loan is worth risking beimg forever in debt for. If I offer you a loan and you need the money to pay for medicine for your child... Is that really a trade that no one would welcome with open arms?
      - vertex-four 7y ago
        Generally speaking most reasonable people think basic healthcare should not put people in life-changing debt. They view any entity which puts people in such debt with serious suspicion, as being a clear part of that system.
        DuskStar 7y ago
        That's nice. But while places like Sweden or the US have the per-capita GDP to pay for universal health care, Kenya really doesn't. (The US has 40x the GDP per capita) So would you rather that there wasn't even the option to go into life-changing debt, and instead death was the only outcome?
egdod 7y ago
Nobody’s holding a gun to their heads. This is a voluntary transaction. Even if we paternalistically shake our heads at the interest rates and the way these companies do business... they are giving people an option that did not exist before. Those people are strictly better off for the existence of that option, since they are free to turn it down.
- vitro 7y ago
  So exploiting people's ignorance or lack of knowledge and/or experience is ok, you say?
- dvtrn 7y ago
  It takes an unfathomably myopic worldview to read this article and just wave it off as “voluntary transactions” while conveniently ignoring the several disparities of exploitative economic power on display between the people making these apps, which are CLEARLY and blatantly taking advantage of people without the financial literacy of those raised in comparatively more developed economies and the people using them. And yet I’m not at all surprised to see it.
  - errantspark 7y ago
    > financial literacy of those raised in comparatively more developed economies Wellll, we still have payday loans and the like so I wouldn't really put too much stock in the financial literacy of the developed world.
    - dvtrn 7y ago
      I don't quite understand whatever counterpoint you're making, can you help me grok your response a bit better?
      - swagonomixxx 7y ago
        I think he's trying to say that even in the developed world there are people taking out loans with ridiculous interest rates, so that this phenomenon of taking out loans you can't pay isn't exclusively a "developing world" thing. Money Mart and the like come to mind, and I'm sure there are many other loan shark companies out there that do similar things.
ryandrake 7y ago
I’ve always kind of had a problem with the whole idea of describing a loan as ”predatory”. I know it’s the accepted vernacular, but it’s really a loaded term. “Predatory” removes the borrower’s agency and reduces him to a helpless gazelle, walking around the savannah one day when all of a sudden a “predator” jumps out and suddenly he has a loan! Is this really how it works? You wake up one day to find a “predatory” loan preying on you? These loans aren’t walking around attacking the general public. Yes, they’re marketed unethically. Yes, they take advantage of the borrower’s lack of financial education. Yes their repayment terms are usury and unfair. But they don’t stalk people and force them to become borrowers. I think someone should come up with a less inflammatory word for these loans. Maybe “exploitative loans?”
- jvolkman 7y ago
  Venus flytraps are predators too, but they don't stalk. They lure their victims with a seemingly good deal that ends up having huge consequences.
  - deleted 7y ago
    [deleted]
- ikeyany 7y ago
  Taking advantage of people's desperation is predatory.
notahacker 7y ago
there's also a lot of well-intentioned and even purely philanthropic microfinance initiatives that end up becoming a burden on a too-large proportion of recipients too. Tiny short term loans in remote locations create admin overheads which make the exorbitant interest rates difficult to avoid. Somewhere along the line the rationale switched from 'poor people with no access to credit just need one break so they can get the equipment they need to make a living' to 'actually, regular borrowers at 15%/month are good borrowers, not bad at budgeting within their already low incomes' though, and the marketing got more aggressive
deleted 7y ago
[deleted]

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.
Ozzie_osman 7y ago
I grew up in a North African country (and was part of and remain involed in the tech scene there till now), and Kenya is actually viewed pretty favorably on the tech/fintech side... I think in no small part due to M-Pesa's success.
gruez 7y ago
> 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 :/ Naive libertarian question: is this an issue when the rate is clearly conveyed to the consumer, and it's the rate needed to make a profit given the high default rate and/or overhead? That interest rate should be close to the market clearing rate (ie. minimal profit), assuming it's not too difficult to get into the lending space.
- saint_fiasco 7y ago
  The only time it makes sense to charge super high interest is if you expect lots of customers will default. That means you already know your business will end up causing lots of people to be in debt forever. If you choose to go ahead anyway, obviously people are going to think you are evil.
  - DuskStar 7y ago
    It also means that many people think that your loan is worth risking beimg forever in debt for. If I offer you a loan and you need the money to pay for medicine for your child... Is that really a trade that no one would welcome with open arms?
    - vertex-four 7y ago
      Generally speaking most reasonable people think basic healthcare should not put people in life-changing debt. They view any entity which puts people in such debt with serious suspicion, as being a clear part of that system.
      - DuskStar 7y ago
        That's nice. But while places like Sweden or the US have the per-capita GDP to pay for universal health care, Kenya really doesn't. (The US has 40x the GDP per capita) So would you rather that there wasn't even the option to go into life-changing debt, and instead death was the only outcome?

egdod 7y ago

Nobody’s holding a gun to their heads. This is a voluntary transaction. Even if we paternalistically shake our heads at the interest rates and the way these companies do business... they are giving people an option that did not exist before. Those people are strictly better off for the existence of that option, since they are free to turn it down.

vitro 7y ago
So exploiting people's ignorance or lack of knowledge and/or experience is ok, you say?
dvtrn 7y ago
It takes an unfathomably myopic worldview to read this article and just wave it off as “voluntary transactions” while conveniently ignoring the several disparities of exploitative economic power on display between the people making these apps, which are CLEARLY and blatantly taking advantage of people without the financial literacy of those raised in comparatively more developed economies and the people using them. And yet I’m not at all surprised to see it.
- errantspark 7y ago
  > financial literacy of those raised in comparatively more developed economies Wellll, we still have payday loans and the like so I wouldn't really put too much stock in the financial literacy of the developed world.
  - dvtrn 7y ago
    I don't quite understand whatever counterpoint you're making, can you help me grok your response a bit better?
    - swagonomixxx 7y ago
      I think he's trying to say that even in the developed world there are people taking out loans with ridiculous interest rates, so that this phenomenon of taking out loans you can't pay isn't exclusively a "developing world" thing. Money Mart and the like come to mind, and I'm sure there are many other loan shark companies out there that do similar things.

ryandrake 7y ago

I’ve always kind of had a problem with the whole idea of describing a loan as ”predatory”. I know it’s the accepted vernacular, but it’s really a loaded term. “Predatory” removes the borrower’s agency and reduces him to a helpless gazelle, walking around the savannah one day when all of a sudden a “predator” jumps out and suddenly he has a loan! Is this really how it works? You wake up one day to find a “predatory” loan preying on you? These loans aren’t walking around attacking the general public. Yes, they’re marketed unethically. Yes, they take advantage of the borrower’s lack of financial education. Yes their repayment terms are usury and unfair. But they don’t stalk people and force them to become borrowers. I think someone should come up with a less inflammatory word for these loans. Maybe “exploitative loans?”

jvolkman 7y ago
Venus flytraps are predators too, but they don't stalk. They lure their victims with a seemingly good deal that ends up having huge consequences.
- deleted 7y ago
  [deleted]
ikeyany 7y ago
Taking advantage of people's desperation is predatory.

notahacker 7y ago

there's also a lot of well-intentioned and even purely philanthropic microfinance initiatives that end up becoming a burden on a too-large proportion of recipients too. Tiny short term loans in remote locations create admin overheads which make the exorbitant interest rates difficult to avoid. Somewhere along the line the rationale switched from 'poor people with no access to credit just need one break so they can get the equipment they need to make a living' to 'actually, regular borrowers at 15%/month are good borrowers, not bad at budgeting within their already low incomes' though, and the marketing got more aggressive

deleted 7y ago

[deleted]