Jerome Ambani, 46, hit cloud nine when he received his Toyota Vitz car to venture into taxi business in Nairobi.
"In January 2020, I saw a billboard in Ngara, Nairobi, advertising 80 per cent car financing by a local credit firm. I thought it was a ticket out of poverty but it has since made me lose everything I cherished - my family," he says, fighting a cloud of dense tears in his tired red eyes.
The father of three, who now depends on manual work and handouts from friends and extended family, told the Star that he was handed the car after agreeing on a payment plan and deposited Sh250,000.
Although the total cost of the car was Sh800,000, the repayment plan of Sh45,000 for 18 months would have seen him pay Sh200,000 more.
He was comfortable with the arrangement - until he defaulted on the fifth instalment by three days.
"The lender quickly forgot my past repayment record and embarked on threats. My several visits to the firm and pleas to restructure the loan fell on deaf ears. The car was quickly repossessed, my deposit and interest paid notwithstanding," Ambani told the Star.
He claims that the lender showed him a hidden clause in the agreement that allowed for repossession of a vehicle if the borrower defaulted for three consecutive months.
Documents seen by the Star reveal a shocking trend where some lenders move in to auction hapless borrowers’ properties after slapping them with huge default penalties, as high as five times the borrowed amount.
A case in point is that of Alice Thuo who has since taken Mwananchi Credit to court, accusing the lender of interest loan infringement for a credit facility she took back in 2020.
According to court papers, Thuo had applied for a Sh50 million loan against a prime property in Nairobi.
But the lender only disbursed Sh30 million, demanded Sh3.33 million repayments per month and five per cent weekly interest on defaulted amount.
Cumulatively, the loan shot to Sh177.5 million in less than two years, with the lender threatening to auction the property to recover the amount.
The firm had not responded to our inquiries about this case by the time of going to press.
Buy Now Pay Later credit services have been steadily growing in the country. Operators say they aim to provide consumers with goods on credit.
The current surge in e-commerce, in addition to the Kenyan consumer’s appetite for flexible and affordable payment options, has helped accelerate the growth of the BNPL ecosystem.
According to Business Wire, BNPL payments were expected to grow by 23.2 per cent on an annual basis to reach $1.06 billion in 2023. It is expected to reach $1.89 million by 2028.
But as the financing model gains traction in the country, borrowers are full of sad tales of exorbitant rates and crafty rules that have seen their properties repossessed.
Elvis Meyo, a boda boda operator, laments that Watu Credit offered to finance the purchase of his bike, which was selling at Sh120,000.
Meyo says the repayment terms were not clear and he came to notice that he was supposed to pay Sh400 daily for 18 months, which adds up to Sh211,000.
He said that he paid Sh12,000 as deposit. He would have paid almost double the bike's market price by the time he completed the loan.
Sally Kihara and her husband, who bought phones on hire purchase offered by Watu Cregit and M-Kopa, are also lamenting the high rates.
"The phone I took via an initiative by Watu Credit is currently retailing for Sh18,000 and that of my husband is selling at an average of Sh16,000. We are both paying Sh300 per week for 18 months in addition to a deposit of Sh6,000. This is double the value," Kihara said.
She is now calling for a regulatory policy to curb the ongoing over-exploitation by creditors.
But Watu Credit denies the allegations, saying that its commitment to empower entrepreneurs in Kenya has met with many challenges.
"However, with the understanding that this is a relatively new industry and through resilience and determination, the company continues to navigate these obstacles," the firm said in response to our inquires.
It added that the availability of these financing solutions has significantly contributed to industry growth and played a vital role in creating employment opportunities for millions of young and ambitious entrepreneurs throughout the country.
We had sought to establish how the company strikes a balance between financial inclusion and profitability.
The high number of complaints by borrowers against these creditors has caught the eyes of the government.
Late last year, the Senate Finance Committee summoned Central Bank Governor Kamau Thugge to respond to predatory assets-based lending and high interest rates on loans offered by Momentum Credit Company Limited.
Thugge stated that the Central Bank of Kenya Amendment Act, 2021, and the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022, provide for the licensing and regulation of previously unregulated digital credit providers.
Assets-based lending companies fall within the definition of digital credit business under the CBK (Digital Credit Providers) Regulations, 2022. Once licensed, administrative and enforcement actions would be taken on entities that fail to comply with any section of the law.
Nairobi Governor Johnson Sakaja has also raised his voice against some of these lenders, accusing them of terrorising and exploiting boda boda owners with exorbitant interest rates.
Sakaja instances where motorcycles were impounded even after operators had paid more than double the initial value of the motorbikes.
The Digital Financial Services Association of Kenya has warned of stern action against members who take advantage of vulnerable groups to charge exorbitantly for property acquired through hire purchase.
DFSA chairman Kevin Mutiso, who spoke to a local paper, denied reports of the lobby members taking advantage of borrowers. He termed the extra-collateral charges as criminal
He cautioned boda boda borrowers to undertake due diligence to ensure they seek services in credible firms.