EDITORIAL: Rein in micro-lenders to save suffering borrowers

According to the bankers lobby group, Kenya Bankers Association (KBA), consumers are paying up to 521 percent annualised rate for mobile loans that are selling like hot cakes, thanks to easy access and convenience.

According to a recent KBA study, by buying electricity on credit through a Safaricom associate under a product dubbed Okoa Stima, consumers are paying up to 43.4 percent monthly interest. The conventional rate for a bank rate is 1.1 percent per month.

Seen through this prism, it becomes evident that borrowers are being asked to pay way too much for the electricity loans.

Other micro-lenders are also not far off these high rates.

This, in itself, is mind-boggling considering that the government three years ago took the bold step of capping interest rates at not more than four percentage points above the Central Bank Rate.

As a matter of fact, many lenders are forming a beeline to enter this lucrative and unregulated market.

Which is the gap that should concern the government and the banking industry regulator.

Why are the mobile lenders not being put under the ambit of the CBK? What happened to the bill meant to regulate the sector? It does not make sense to have players in the money market operating under different rules while they are offering near-similar services.

While commercial banks are charging as low as 1.1 percent on their lending monthly, why should a micro-lender be allowed to raise the rate more than 40 times? What are the fundamentals explaining such disparities?

We ask the Central Bank as the regulator, and legislators as the representatives and oversight body, to return to the drawing board as early as possible to come up with a law that will ensure that the mobile lenders operate on a reasonable scale guided by the law.

The prevailing laissez faire situation is a threat to other lenders and the consumer who is stepping onto a dangerous debt trap.