
Companies flooding Kenya with apps offering high-interest loans - kaboro
https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans
======
Ozzie_osman
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).

~~~
egdod
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.

~~~
wmeredith
> Nobody’s holding a gun to their heads. This is a voluntary transaction.

By this logic would should allow heroin to be sold at 7-11's

~~~
mschuster91
> By this logic would should allow heroin to be sold at 7-11's

This would at least eliminate many overdoses due to incredibly varying
strength or contaminations, especially fentanyl.

~~~
sp332
That would only happen if there were regulation of the legalized drug. If we
kept letting the same people make the same crap-quality drugs, people would
keep dying.

~~~
whatshisface
Bayer would probably put the Zetas, or whoever is making Heroin, out of
business with their six-sigma warehouse controls, meetings, and use of
powerpoint.

~~~
catalogia
If Bayer weren't regulated, would you still trust their product?

~~~
whatshisface
It depends, does the society we're imagining have a working liability system,
or does money always win in the courts? FDA regulations come along with
protection from liability, so you could imagine two adjustment knobs: one
setting Bayer's control over the FDA through regulatory capture, and the other
setting Bayer's control over the courts, through procedural loopholes and
lawyers outsmarting judges. If both knobs are turned up, drugs will poison you
no matter what. If the courts are less controlled than the bureaucracy, then
when the bureaucracy awards protection from liability it will be making the
drugs more dangerous. If the bureaucracy is less controlled than the courts
then you will depend on it to hold back against the companies who know that
hurting people will be pure profit if they can sneak through the approval
process. If both knobs are turned down, it doesn't matter who is protecting
you because you'll be protected.

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will_wheat_on
It's actually a lot worse than it sounds. There are no loan apps for iOS
simply because iOS won't give you access to messages. These companies read
your messages and at times call people you know to collect.
[https://nairobinews.nation.co.ke/news/loans-app-finds-a-
chee...](https://nairobinews.nation.co.ke/news/loans-app-finds-a-cheeky-way-
of-dealing-with-defaulters) The interest rates are so high that I don't think
they bother with credit scoring.

~~~
gruez
The article says that the lender is calling the debtor's contacts. Doesn't iOS
allow apps to access the user's contact list? I definitely remember seeing
"App xyz would like to access your contacts" prompts before.

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jfk13
How unsurprising: Silicon Valley high-flyers make money comfortably from their
flashy offices, while the impoverished masses at the bottom of the pyramid,
without resources and options, are exploited as usual.

But of course, "the company doesn’t condone" exploitative practices, and will
investigate. Must be just a few bad apples spoiling an otherwise-worthy
endeavour.

~~~
will_wheat_on
Their interest rate is exploitative - 15% per month. So if you borrowed $100
at the beginning of the year, you'd need to repay $280 with $180 going to
interest alone. This is their policy from their own website
[https://talasupport.zendesk.com/hc/en-
us/articles/3600218533...](https://talasupport.zendesk.com/hc/en-
us/articles/360021853332-What-kinds-of-fees-and-interest-does-Tala-charge-)

~~~
fleetingmoments
No. The 15% is a flat fee. The penalty for late repayment is an additional 8%.
It doesn't compound.

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westpfelia
Opera web browser got in trouble with some of this last year. Its super
shitty. I think the most I ever heard of interest rates going was near 450%?
Honestly how shitty do you have to be to think that people who have to take
out a loan can afford to pay you back 2, 3, or 4 times the amount they
request? Its evil.

~~~
chrisjc
Wait a second... You mean Opera got in trouble for facilitating such activity
through predatory lending web-sites it renders, or that Opera the browser
company got in trouble for predatory lending?

edit: i guess i should have read the whole article... opera released a lending
app.

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nabnob
This reminds me of the crypto currency startups that claimed crypto currency
would help people in impoverished countries find financial freedom away from
their local banks, when in reality these predatory companies just wanted to
use poor people's desperation to sell them crypto.

I'm automatically skeptical of any vc-funded startup that claims it's going to
help impoverished people, including those funded by Y Combinator.

~~~
n0rbwah
They're going to help the impoverished founders to become millionaires.

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dvtrn
_It says it can reach those who’ve been ignored by banks, because its software
generates instant credit ratings from data scraped off prospective borrowers’
phones_

Wow...

~~~
bradleykingz
This makes it sound super impressive, but they really just generate a credit
report from your Mpesa transaction messages (these are sent back to you via
SMS)

~~~
dvtrn
No it sounds super disgusting. Personal data capitalism rearing its head in
the third world and smaller, developing nations and the complete ethical
bankruptcy of these purported interest rates is disgusting.

(Also fwiw this is the second comment of yours I had to vouch and Unflag, and
I wonder who is doing this and why).

~~~
icebraining
> fwiw this is the second comment of yours I had to vouch and Unflag, and I
> wonder who is doing this and why

I'm guessing it's the anti-spam mechanisms of the site. Any account with a low
number of comments is susceptible to it.

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seibelj
Banks and credit card companies sell all of your transaction data for similar
analytics purposes. Do a few google searches for "mortgage refinancing", then
click a few blogs, and watch as you are followed by mortgage ads for months.
Kenya is less formalized, so they derive the data from phones rather than a
backhanded way via your payments history.

I'm not defending this practice, just letting you know that the same thing
happens whether you are rich in a developed country or poor in a developing
country.

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Nasrudith
I can't help but wonder if the shady companies are going to be scammed to hell
and back by the more savvy of their clients. I don't know if the credit agency
threats are genuine or not - I lean towards not generally given the trends
western debt collectors making shit up even when it is illegal.

What is stopping the user from taking out loans and running off essentially?
Burners may be more expensive relatively in Kenya but it could still be
profitable enough to tempt someone into serial bad loan taking even if it
/actually/ forced them to live on the run.

It brings to mind a darker escalation of trying to contract people out as
local debt collectors but that sort of thing tends to cause even cynical and
corrupt governments to shut it down quickly for threatening the monopoly on
violence.

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fleetingmoments
How do they get to an 180% annualised interest rate? Tala doesn't charge
interest, it charges a flat fee of around 15%. If you don't pay on time you
get charged another once-off late payment penalty. It doesn't increase after
that. So if you borrow $100 and repay $115, it's 15%. If you take out another
loan immediately every time you end up borrowing $1200 over the year and
repaying $1380. Still 15%.

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GreeniFi
I am involved with a company called GreenFi (greenfi.org) which is an ethical
financial inclusion fintech. If you’re interested in this sector (especially
as an investor) and want to see how this can be done properly and fairly by
experts, please reach out to us through our website, or leave a contact email
here.

------
dsalzman
What happened to the buzz around "micro loans" and giving money to people in
need at fair terms?

~~~
rodonn
The problem is that the actuarily "fair" price of these loans is very high
because the risk of non-repayment is very high. If 25% of people don't pay
back a loan, then you need an interest rate of at least 33% on the 75% who do
pay you back in order to break even.

The only solutions are (a) to try to do a better job of identifying who
will/won't pay you back or (b) to do more to make sure that people do pay you
back.

(a) has the disadvantage that you aren't able to help a lot of people who most
need the help. (b) can easily become exploitative as you increase the pressure
on people who are at risk of defaulting on their loans.

~~~
dublinben
If the interest rates have to be that high, maybe these loans just shouldn't
be made. There's got to be a better way to "help" these people than saddling
them with predatory loans.

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duxup
I wonder if it plays out like a sort of pyramid scheme where the company
offers enough loans to get them in trouble then they have to borrow from
someone else ... now that company has exited with their profits.

~~~
jfk13
There's also a screenshot indicating that borrowers are incentivised (offered
a small reward) if they push these high-interest loans on others as well.
Multi-level marketing meets loan sharking.

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tengbretson
Does Kenya have a strong, nationally-ubiquitous system for individual credit
ratings? If not, then the joke might end up being on the companies giving out
cash and not on the people taking predatory loans.

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godtoldmetodoit
If you'd like to help prevent people needing to use such a service, check out
givedirectly.org

Non-profit that just hands out cash on a regular basis to those selected to do
with as they choose with 0 conditions.

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tempsy
My understanding is that Kiva microloans also have very high interest rates,
but haven't necessarily heard anyone critique their business model.

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thecleaner
I dont understand why African nations dont gang up and get rid of ths whole
free trade bullshit. This nonsense has given rise to so many unethical
industries. Be it the charities that collect donated clothes and sell it in
Africs devastating their local industries or these lending apps or the so
called poverty tourism. I hope these countries can band together and get rid
of this pludering behaviour.

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apta
Entrapping users with interest bearing loans is modern day slavery.

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iandanforth
I find usury to be one of the most pernicious, corrosive, and abhorrent
tolerated behaviors in modern society. Usury was a sin until the power of debt
overrode the moral authority of those who originally condemned it
([https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-
be...](https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-become-
respectable-finance)).

Instead of funding these morally bankrupt and self-interested startups, let's
support effective generosity. Give today:

[https://www.givedirectly.org/](https://www.givedirectly.org/)

~~~
thefounder
>> Instead of funding these morally bankrupt and self-interested startups,
let's support effective generosity. Give today:

How is that sustainable? A low interest loan would seem more reasonable. And
who wants free money?

~~~
dint
This is a long-contested debate in the field of international development. The
model you propose is called microfinance, and has been attempted for decades.
Here's a summary of the issue: [https://blog.givewell.org/2013/01/04/cash-
transfers-vs-micro...](https://blog.givewell.org/2013/01/04/cash-transfers-vs-
microloans/)

In short:

\- Microfinance programs that grant small, low-interest loans aren't
sustainable. Administering those programs (especially in developing countries)
carries massive overhead that isn't offset by revenue from interest.

\- Furthermore, there isn't strong evidence that low-interest loans actually
improve their recipients' well-being on net (considering the harm that
indebtedness can cause).

\- Evidence (from randomly-controlled trials) shows that direct cash transfers
are effective in improving recipients' well-being on a number of metrics, and
that recipients do not spend them on "sin goods" like alcohol or tobacco[0].

[0]
[https://www.princeton.edu/haushofer/publications/Haushofer_S...](https://www.princeton.edu/haushofer/publications/Haushofer_Shapiro_UCT_QJE_2016.pdf)

------
aganame
This needs to be highly illegal, globally, and enforced by the UN. Which
implies that the UN needs to be made more powerful.

~~~
adz_6891
The IFC and World Bank appear to hail Tala (and similar organisations) as a
top "fintech firm innovating in financial inclusion" [1]

These organisations may be more likely to give companies like Tala support
than routing them out, unfortunately.

[1] [https://www.european-
microfinance.org/publication/financial-...](https://www.european-
microfinance.org/publication/financial-inclusion-digital-age)

