•A probe by MPs has revealed that the firms acquire loans from banks at a rate of 20% and advance the same through asset acquisition on a rate of up to 103%.
•Watu Credit Chief Executive Officer, Andris Kaneps and the Country Manager, Eric Massawe revealed that the facility does not have a regulatory framework governing their relationship with their clients.
It has emerged that Kenya is the only country in the region without a law governing the operations of the Buy-Now-Pay-Later companies exposing locals to exploitative dealings.
Image: HANDOUT
It has emerged that Kenya is the only country in the region without a law governing the operations of the Buy-Now-Pay-Later companies exposing locals to exploitative dealings.
A probe by Members of Parliament on the industry players has revealed that the firms acquire loans from banks and financial institutions at a rate of 20 percent and advance the same through asset acquisition on a rate of up to 103 per cent.
The MPs had summoned Asset Financing entities Watu Credit Ltd, MOGO Credit Ltd, and M-Kopa Credit to appear before it in relation to the allegation of exploitative lending practices to the Boda Boda operators in the country.
The engagement is part of an ongoing inquiry being conducted by the Finance and National Planning Committee on the credit lenders.
Appearing before the Committee, the credit providers were put to task to explain under which regulations they have operating.
Watu Credit Chief Executive Officer, Andris Kaneps and the Country Manager, Eric Massawe revealed that the facility does not have a regulatory framework governing their relationship with their clients.
The Committee also heard that the credit facility is currently not regulated under any specific Act or regulations, and neither does it access credit facilities through a digital platform or receive money directly.
“The interaction with our customer’s is through Mpesa which is the channel customers pay their loans,” said Kaneps.
He explained to the MPs that Watu Company relies on commercial loans obtained from Kenyan Banks with an interest rate averaging 20 per cent, while the total cost of ownership by customers is computed at percentage of 103, annually.
But in its defence, Watu Credit told the House team their interest rate is determined by a number of factors, including risks involved.
“The 8.6 per cent interest per month is not the whole asset value. It is interest that is applied to the financed amount. It is based on reduced balance model,” Massawe said.
The Members found this to be exploitative to clients, since they end up paying interests higher than the purchasing cost of the asset.
Additionally, with regard to the regulatory regime, the director admitted there is a gap in law as all Acts that fall under the services provided by the company do not specifically regulate non-deposit asset financing.
Further, he admitted that among the seven countries they operate in, Kenya is the only country without regulation in that area.
The committee chaired by Kuria Kimani questioned why the logbook of the asset is registered in the name of the owner of the credit facility, instead of a joint ownership between the client and the company.
“We find this situation not in favour of the client because in the case of an accident the compensated party is the name that falls under the logbook thus leaving the client vulnerable,” said Kimani.
The Committee Members while pointing out the confusion on which category the business falls under, sought answers as to why once the motorcycles are stolen and repossessed, they are renamed under Watu Nominees Company which is a subsidiary company owned by the Watu Credit Company.
The CEO acknowledged that there is a lacuna in law for the regulation of the business and to address customers’ concerns.
Kimani directed that the company carries out an investigation on the riders they have on boarded and who have made complaints that their motorbikes had been stolen and follow up with an aim of compensating them.
The committee directed the lending firm to create a conducive business environment that does not exploit their customers.
The company agreed to cooperate with the Committee in its ongoing probe even as it moves to make legislative interventions to remedy the situation.
Among the areas that the Committee focused on was over-indebtness, default areas and financial stability of consumers especially the boda boda riders whom the Members held require cushioning from exploitation.
The MPs also sought to know if the company has been meeting their tax obligations.
In response, the company management told the Committee that they had contributed over Sh5 billion in taxes to the Kenya Revenue Authority since they began their operations in Kenya, and had made over a Sh1 billion in losses.
The committee will next week meet more lenders in the sector as it moves to check on the complaints by the riders.
Scheduled to appear next week are Mogo Credit Limited and M-Kopa Credit.