Mobile Loan Interest Rates and Wakulima Market, Growth Performance in Nairobi County

Abstract

Mobile lending refers to the process of lending over hand-held devices by a financial firm to an applying customer. Mobile-based lending has grown in Kenya over the last 10 years with estimates placing the platforms over 49. The problem with the industry, is that it is mostly unregulated despite including some of the biggest financial players such as Equity Bank, Kenya Commercial Bank and Cooperative Bank. The explosion of the industry is made possible by the expanding financial technology industry. Despite the small amounts of loans offered, interest rates are very high, some in excess of 43% with the borrower charged for late payments. The platforms depend on constantly attracting new borrowers sending unsolicited messages and utilizing aggressive methods such as contacting friends and family when seeking repayment. It is usually unclear what the borrower will have to repay and the terms of agreement. This is a problem because the users of the platforms are usually the poor and unbanked. The aim of this research is to determine the effect this exorbitant mobile lending rates has on the growth and socio-economic outcomes of this crucial part of the population with a focus on vendors and customers who utilize Wakulima market in Nairobi County, Kenya. Small and medium enterprises (SMEs), which form the largest part of enterprises in the market are particularly exposed to this trend. The study concludes that high mobile lending rates are bound to curtail the growth of SMEs in Kenya especially in agriculturalbased markets such as Wakulima, thus more regulation such as improving disclosure to the borrower on interest rates and reforming the current digital credit system.