November 2012, Safaricom and CBA launched a mobile platform that allowed M-PESA users to save and borrow money on their phone. At that time, I was preparing for the end of semester exams and I did not give the product much thought. Unknown to me, the product would come in handy just a few days later.
The end of a semester is usually a gloomy time. You have run out of money because money comes at the beginning of the semester, and exams are coming and they come every semester. This is a rite that is repeated every semester for most students. It was the same thing in November 2012.
A friend of mine who had made it as an academic writer approached me to help him withdraw some dollars from Skrill (or was it PayPal?). I had a foreign currency account, and using my account would help him save money by finding a favorable Forex Exchange service. We agreed that he would send me the money so that I withdraw on his behalf.
Due to time constrains, I would only be able to visit the bank after exams. The process was do the last paper, hand in any pending assignments (the power of last minute), clear from the hostel, then go to the bank to withdraw the cash on our way home.
By the time the last day came, we had exhausted all the money we had. We only had enough fare to get one person to the bank. I went to the bank and queued for three hours since it was the last weekend to Christmas. The shocker came when I realized that the International money transfer was not complete and my account read $ 1.62.
I needed to go home the same day. I only needed about 600 bob to get home. I turned to M-Shwari.
M-Shwari Saves the Day
I had heard about a new product called M-shwari. A quick Google search showed that one needed to save some money with M-Shwari in order to qualify for a loan. I asked my friend to send me 50 bob on M-PESA which I deposited into Mshwari and instantly qualified for a loan of 1200 bob. I took the loan quickly, withdrew from M-PESA and in a few minutes, I was on my way home.
Mshwari had saved the day.
My friend needed at least KShs 2000 to get home, thus M-Shwari would not help.
Several years later, I do not think that M-Shwari is that great an invention. Several other digital lenders came into the Kenyan market and have caused untold misery to people. All of them have one thing in common; they are quick to lend, at a very interest. They also came into a market where people were not well versed with how credit reference bureaus works. This resulted in thousands of people getting listed there until the Central Bank of Kenya came to the rescue.
I used M-Shwari several other times after that debut, until it dawned on me that it was just a loan given at an interest of 90% pa. It was for convenience, but most of the time it was irresponsible borrowing. I stopped using those services.
Unfortunately, the poorer you are, the more you are likely to use this M-Shwari and other digital loan services. The poor end up getting credit at a very high interest rate. This is very appealing to the lenders.
I also do not get it why they insist on the same interest rate for everybody even those who have a good repayment record. If their lending is driven on data, they should be able to leverage on this to give cheaper loans to members in good standing as opposed to a flat rate for everybody.