Digital lenders and financial institutions in Kenya have been warned against using shame-based debt collection tactics.
Kevin Mutiso, chairperson of the Digital Financial Services Association of Kenya, emphasized that no lender has the legal right to call or message an individual’s contacts when they default on a loan.
Speaking on Nation FM’s Fix The Nation show on March 25, Mutiso made it clear that such actions are a violation of data protection laws.
“I’ve had incidents where people have been called and shamed or had their contacts downloaded, and messages sent to all their friends and family. That is illegal,” he stated. “There’s no legality, there’s no provision in the law that allows lenders to do that. Those who engage in such practices are breaking the law and can be fined.”
Mutiso disclosed that two digital lenders had already been penalized for breaching data privacy regulations, with investigations revealing that they had harassed customers by sending messages to their contacts. He underscored the importance of consumer protection, stressing that financial inclusion should not come at the expense of ethical lending practices.
I have KSh 1 million loan from 52 apps, my salary is KSh 55,000
Understanding consumer rights and responsibilities
Mutiso urged borrowers to educate themselves about their rights and financial responsibilities. “The first thing I always tell people is: don’t borrow to consume. If you see a nice handbag or a nice pair of shoes, don’t take a loan for it. Borrow to make more money,” he advised.
According to him, many digital loans serve as working capital for small businesses. “We lend over KSh 15 billion a month to about 8 million Kenyans. The average loan ticket is KSh 5,000, mainly used for business growth, like increasing stock for small traders or fueling boda bodas.”
He also cautioned against reckless borrowing, advising borrowers to understand interest rates and hidden fees before taking loans.
“If I’m being charged 10%, but my business margin is 5%, I’m already making a loss. Don’t borrow without doing the math. We have also noticed a trend, especially among the young people who borrow and use the money for wrong reasons. I’ll give you a number. Did you know we bet 10 million shillings per hour in Kenya? I cannot lend my money to somebody who is likely to bet,” he said while explaining why some lenders tend to shy away from some demographics..
Strengthening consumer Protection
To curb predatory lending, Mutiso revealed that digital lenders are required by law to provide full loan terms before issuing credit. “Under the Data Protection Act 2019, there’s something called express consent. Before taking a loan, you must be informed of the repayment date, interest, and fees. We don’t just tell you the interest rate; if you borrow KSh 1,000, you must know that you’re repaying KSh 1,050 on a specific date.”
He highlighted efforts by the association to create a minimum standard for ethical lending, ensuring that responsible lenders are not grouped with predatory ones. “We are lobbying for consumer protection improvements to shield borrowers from harassment and unethical practices.”
Fighting over-indebtedness
Mutiso acknowledged that over-indebtedness is a major issue in Kenya, worsened by the 2020 government directive barring unlicensed lenders from submitting borrower data to credit reference bureaus.
“This made it impossible to track how many loans a borrower had across different lenders, leading to people taking multiple loans without lenders knowing their real financial position,” he explained. “We are working on a debt repair framework where we consolidate loans and restructure repayment terms to ease the burden on borrowers.”
A call for ethical lending
Mutiso urged borrowers facing harassment to report unethical lenders to relevant authorities, including the Office of the Data Protection Commissioner (ODPC) and the Central Bank of Kenya (CBK).
