A couple of days ago, it emerged that many loan apps were running their trade normally, with their tools live in Google Play Store many months after Alphabet detailed a set of regulations for financial apps. The rules tasked the mobile lenders to disburse loans with at least 61 days in repayment period, and charge not more than 36 percent in interest.
Of course, we expected that the affected companies were not going to comply owing to the design of their business: they offer unsecured loans using data on a customer’s phone. The exercise does not require any paperwork (it has, however, grown to ask for ID details such as national IDs and images for security reasons), hence it is very attractive to many people, but makes it very expensive for them because that trust has to be paid for.
Google’s new policies are motivated by the need to protect users from exploitation by these apps. For a long time, mobile credit services have raked massive profits by charging astronomical interest rates because, well, they are giving money to strangers, and must cushion the risk by charging high rates under a strict, short timeline.
The same worries have been echoed locally. The CBK, for instance, has since admitted that it needs a robust framework to regulate online lenders. The discussion has been going on for a very long time without any significant developments. It is a shame that Google has been forced to tame the space in a situation that local financial institutions could have addressed the chaotic and money-grabbing nature of these apps a long time ago.
Has Google failed to enforce its regulations?
While the rules were put in place more than five months ago, the mobile lending space has not changed as much, at least for the most part.
We say this because countries such as Kenya have tens of lending apps that have unfairly taken advantage of poor people because, well, the sector is hardly policed, and Kenyans have a natural appetite for quick loans – but can you blame them?
Kenya is also mentioned because it is one of the few countries where mobile money has taken off. Most mobile loan companies disburse their funds through M-PESA, which eliminates many steps such as sending the money to a bank account and going to a bank to withdraw it. Solely, the success of loan apps, among other fintech products, is linked to the existence of M-PESA.
The other day, Norwegian company Opera which runs a browser was on a hot seat when it emerged that it was operating loan apps that did not adhere to Google regulations.
Okash and OPesa are based in Kenya. Okash is the popular one and has been notorious for limiting loans to a fortnight for the base loan (KES 1500). Many people have voiced their complaints to no remedies.
A few days ago, Opesa disappeared from the Store from what we believe was an action initiated by Google. A couple of hours later, the app reemerged with revised rates and repayment periods. The same development was noted for Okash.
Customers have also raised concerns that the app gives you the 61-day window for repayments, but nags you with a different repayment plan via text. If true, then this is a dubious approach to doing business and is likely to drive many angry conversations.
Branch, which is arguably one of the largest lenders in Kenya, has been offering flexible repayment periods for some time now. The firm further says that the 61-day period is one of their options, but adds that customers can choose to repay loans earlier if they choose to (a shorter window is accompanied by reduced rates). It however fails to state if it will eliminate shorter payment time and revise interest rates according to Google’s rules.
Tala operates in the same manner as Google, and says it complies with Google’s policies. Still, customers have the option to pay their mobile loans after two weeks, one month and so on. This, obviously, does not make sense because Google strictly advises stretching the period to at least 61 days.
Many other mobile lenders have edited their changelogs to indicate that they have abided to the new stringent policies. As we have stated, some of the statements are there for optics, but in reality, customers cannot borrow for longer than two weeks.
More work for Google
Google has the ball on its court. It is appalling that these apps can toy with the policies and sneak their business to the Store under the eyes of the search giant.
It is also likely that Google will go the extra mile and kick out any crafty lenders from the store. But knowing how the lenders make money, many of them are going to lose substantial revenues because let’s be honest, they feed off from vulnerable customers who use their services because banks cannot give them money. This is a development that we are not sure how it will play out should Google revitalize its stand and stamp authority on rogue lenders.
Mobile lenders have also seen thousands of Kenyans listed on CRB for as little as KES 200, making it even harder for them to get access to loans. They further need more money to restore a good credit score.
Google’s financial policies serve as a single step to bringing some sanity in the mobile lending space. However, more work must be done locally by legislators who, hopefully, are formulating a framework that will genuinely protect users from exploitation.
Traditional banks are also giving out loans through mobile platforms, and while their rates are admirable, they still limit payment windows to a month or thereabouts. Admittedly, their products are not considered ‘mobile’, but a legal backing that polices their operations is in dire need.