Kenya's Digital Lenders: Navigating Uncertainty and Seizing Opportunities

A potentially profitable business in a market with an insatiable hunger for loans, digital lenders should've found product market fit early on. On paper at least, the idea makes sense; leverage technology to offer financial services, particularly loans to a wide range of consumers, including those who might not have access to traditional banking services. It has to be a lucrative business, with 500+ firms seeking to be licensed by the CBK to operate. So far, 58 firms have been licensed by the CBK, meaning they are regulated by the bank and follow the Central Bank of Kenya Digital Credit Providers Regulations 2022.

The regulations of 2022 came after an uproar from Kenyans about industry practices. In a wild west environment like the digital lending space before the regulations came into effect, this should have been expected. Predatory lending was rampant; lenders charged high interest rates and used unethical debt collection methods. The situation has improved since and this has encouraged reputable names such as Standard Chartered to get in on the action.

Recent protests in the country have disrupted business for digital lenders who should be making money hand over fist. Their 1 & 2 week loan offerings have been affected, these possibly being their most popular products, probably because the semi-weekly protests mean that there are 2 less business days in a week. Here's what the chairman of the Digital Financial Services Association of Kenya had to say about the situation in an interview -

We have seen a decrease in volumes and an increase in late repayments because of the uncertainty being created. We have accepted that this is a necessary pill to swallow in the short term for a better future. We hope for a solution that can allow for the normal resumption of business

As Larry Fink of Blackrock says, "Markets don't like uncertainty", the situation with digital lenders is a testament to this. The association chairman mentioned that a majority of their customers are on the frontline and thus unable to make payments and take out new loans. This highlights the fact that their offering is targeted at a niche audience, which leaves me wondering why other segments of the market aren't served by these lenders?

Conclusion

Uncertainty affects the markets, regardless of the sector.
Digital lending platforms seem like great, credible businesses especially after the CBK stepped in. The uncertainty in the nation is affecting their business, which is expected, nevertheless, the number of applicants waiting for the CBK license is enough to tell us that there's some money to be made here. With basically no interest rate caps and a pretty relaxed regulatory environment, firms in this space stand to profit from running their digital lending platforms. There's certainly risk of abuse from the lenders through predatory lending; ridiculously high interest rates and all, and that's even more reason for ethical businessmen and reputable brands to get in the space. An opportunity presents itself for digital lenders who can offer optimal client service.
Standard Chartered is one such firm having released their digital lending app. Others are certainly paying attention(I hope they are) and looking for a gap in the market that they're uniquely positioned to fill. Only time will tell who saw this and who didn't.

Resources

Licensed digital credit providers