In one of Nairobi’s high-end estates, a man is selling some shiny tins of cookware on credit. Taking advantage of a well-known fact about Kenyans–their insatiable appetite for taking loans or items on credit – the man lays his entrapping array of goods just near the gate of the estate to ensnare women at their doorsteps.
When we met him, I felt the cruel joke that you should always hold your wife’s hands when in a supermarket applied to me. My wife’s eyes strayed towards a new set of cook stoves she might have admired on social media and as usual couldn’t help but explore.
I could neither hold her eyes nor her hands but I could easily turn down this impulse purchase for the current lean times.
Forget the Kenya National Bureau of Statistics tracked inflation which the official statistician says prices have been rising at a slower rate. The truth is that the value of Kenyan currency is worth less than half what it was a decade ago. And with taxes and deductions taking away the rest of your money, non-discretionary spending is simply off the table.
But the man was insistent and quickly revealed that we didn’t have to pay on the spot; we negotiated a six-month payment plan, which appeared reasonable on the face value. But at the end of the day, we had paid more compared to prices in the shops.
The only difference from other forms of purchase such as buying mobile phones on credit, is that this businessman has not automated his debt collection. These days, it is possible to get an expensive mobile phone on credit and one has to pay some amount every day to have access to the mobile phone. The phone gets blocked automatically if one fails to remit the daily payment.
However, for our guy, at the end of each month, he would send text messages or even call to remind us that the payment was due. It is a new form of taking credit that has gained popularity among Kenyans who might not afford an item at once but can make small daily or monthly instalments to own it. This is the new form of hire purchase.
Supermarkets sell on credit
Even supermarkets are adopting it; it’s possible to make small daily or monthly payments to own a fridge or mattress or even a car. The only exception is that you don’t take with you until you finish payment.
What is surprising is not that this salesman was willing to risk his goods with strangers in a Nairobi estate with their goods on pure goodwill but that this trend is now almost in all facets of Kenyan life today.
Over the last couple of months, Kenyan companies have seen their inventories build up as demand is disrupted by political chaos and diminishing purchasing power, which has been aggravated by a raft of new tax measures such as the 1.5 percent housing levy and the doubling of value-added tax (VAT) on fuel.
The answer has been increased marketing and a perversion of new mobile based pay-as-you-use solutions.
Buy Now Pay Later
Overdraft or credit card-like services including Fuliza have become popular with consumers especially under the current financial strain where inflation is rising and incomes have stagnated.
MasterCard, Aspira, Lipa Later, Craft Silicon, Safaricom-Edomx and Absa Bank and Sasa Pay have all unveiled different Buy-Now Pay Later (BNPL) solutions in recent times.
BNPL is a type of short-term financing where consumers can pay for items over time after an up-front payment.
SasaPay is a digital payment service provider that has rebranded and given way to a new financial strategy solution to its diaspora market targeting mobile money payment.
The firm’s users shall Shop and Pay later through its BNPL model known as “Shop Now Pay Later”. The firm also promises to be the first to enable Kenyans to transact in foreign currency via their wallets, a break-through that has been made possible through its Central Bank of Kenya-regulated partner WapiPay.
MasterCard has teamed up with a BNPL company Lipa Later to unveil a short-term financing product that targets largely merchants.
Safaricom Zero interest credit
On another end, Craft Silicon, a technology firm that also owns ride-sharing company Little, launched its own version of BNPL they described as Get Now Pay Later (GNPL).
Safaricom unveiled its zero-interest credit service for the purchase of goods for up to Sh100,000. The service will enable more than 32 million Safaricom customers to buy on credit from businesses on the telco’s Lipa Na M-pesa platform.
Absa Bank Kenya has also recently scaled up its card features by introducing the Buy Now Lipa Pole Pole solution that will allow its credit card customers to manage their expenses.
Kenya’s Buy Now Pay later is not a phenomenon that jumped out of the woodworks but the scale of asset finance deals has always been limited by scarce records and formality.
The older generation remembers the hire purchase companies like ART, Kenya Credit Traders and Amedo franchise for Singer Sewing machines.
The Kwa Malipo ya Rahisi concept helped many Kenyans who could not afford radio and television sets in the 90’s to aspire to furnish their homes.
But collection was difficult, sometimes even ugly as auctioneers roughed up homes for petty collateral because you were late on your black-and-white Greatwall TV payments.
Not that much has changed. A lot of boda-boda bikes on the Kenyan roads have been bought through a hire purchase agreement from non-financial institutions.
Repayments, especially in the rural settings where cash flow is not abundant, has been a challenge leading to confiscations. This, just as the debt-shaming by digital credit providers, has caught the attention of policy makers.
Manyatta Member of Parliament Gitonga Mukunji, for example, insists that businesses that sell motorcycles to boda boda operators on hire purchase agreements have been defrauding the latter by charging them exaggerated interest rates.
Mr Mukunji wants the Hire Purchase Act, the law that anchors hire purchase agreements, changed to limit the amount of interest payable to the merchants.
Most of these hire purchase agreements, however, are not registered with the State law office.
It is on mobile phones that the new strain of hire purchase has exploded.
When Mobile money started off as a means for facilitating Kenya’s largely social state helping transfer money from working relatives back to dependents in the rural areas, no one had foreseen the potential of the technology.
Just over a decade of innovation and financial engineering and mobile money, led by M-Pesa, is now Kenya’s most efficient way of sending and receiving money, safest storage of money for transactions and settling bills, and now most importantly obtaining credit.
Kenya’s highly connected population with mobile penetration of 124.5 percent, according to official data, has provided fertile ground for foreign start-ups experimenting on digital credit which exploded up on loose regulations.
Use of digital loans grew exponentially as low income households were lured into the easily accessible mobile loans. The CBK told Parliament about 200,000 Kenyans were borrowing money on their mobile phones in 2016 but that had grown to 2 million in 2019, a tenfold jump. And it’s much more now.
Data mining and breaches of privacy
The easily accessible mobile loans however had aggressive recovery methods including lenders being quick to list borrowers for very small defaults. Some of the digital lenders have also been accused of data mining and breaches of privacy through debt shaming of borrowers where they call relatives or close friends on the defaulter’s contact list.
When the regulator began an audit of how many players were in the digital market lending space, they discovered the market was way bigger than Kenya had anticipated.
Thousands of companies were offering flexible payment terms to purchase all manner of items from mobile phones, household appliances, electronics, IT gadgets and even holidays in partnership with retailers like Naivas, Safaricom, Samsung, LG and Hotpoint.
The regulator discovered a large number of digital lenders were hybrids of asset finance companies, offering BNPL services over mobile phones, propelled by technology that allows the firms to assess a borrower instantly using data points akin to digital mobile loans. Through the ‘Lipa Mdogo Mdogo’ for instance, Safaricom identifies eligible customers through their use of Safaricom services for at least one year, using Mpesa, voice and SMS services.
While the likes of Tala and Zenka, Branch and Oye were just the tip of the iceberg, several asset finance digital outfits had creeped up including companies like Aspira, Lipa Later, Miti, Flexpay Technologies, Julla, Pawame and MKopa.
This model was potentially huge in Kenya and was expected to grow by 107.8 percent on an annual basis to reach Sh62.6 billion ($521.8 million) in 2022, according to a report by ResearchAndMarkets.com.
It is a multibillion industry linked to the global clean technology climate change circus that was weaving unsustainable debt onto the shoulders of the Worlds’ poorest. They leveraged the model to access start-up funding and get into partnerships with retailers to help them move products at a time Kenyan consumers are up to the neck in inflation amid stagnant wages.
Off-grid solar power start-ups poured into Kenya’s rural areas offering pay-as-you-go kits in a race to claim customers who lack reliable access to electricity.
PAYGO asset financing companies like M-Kopa, Pawame, Solar Panda, D.Light, Greenlight Planet, Aspira, Bboxx, Azuri, Biolite, Daima Energy, Delta Energy Systems Ltd, Kensen, Mobisol, PowerGen, Solargen, Sunking, Suntech, ZilanSolar, Thrivesolar, Ofgen, Strauss Energy, and ORB Energy are all competing in this space.
With a mix of technology and grey areas in the legal frameworks, these companies managed to collect data that de-risked such asset finance business linking verifiable mobile money accounts that lets retailers extend goods on credit which are then collected by a financial service provider for a fee.
Kenya’s pervasive mobile money infrastructure that has facilitated faster flow of cash, multiplied transactions and facilitated tax collection is opening up a new frontier of credit card economy.
Stiff competition in retail business
Together with the Internet of Things, small remote devices that can regulate metered use of the devices which can switch them off, have smoothed out recovery and discouraged delinquency.
A small trader I talked to recently told me he had to exit the electronic business in the face of competition from asset financed rivals like M-Kopa. He said he could not compete selling Televisions demanding money upfront when the competition was selling them on loans.
“That business died, we cannot compete with these people for loans,” he told me.
But maybe, just maybe, salesmen are finding their small ways to fight back for market share. Where the foreign based companies have digital infrastructure, predictive patterns and credit reference bureaus behind them, salesmen can literally geolocate us.
And now that the limitation of cash is out of the way, my wife has a new shiny piece of cutlery we did not need.