Hustlerfund, a mobile lending application in Kenya advances a 20-year-old woman named Khamba to stock up her fruit stall in Nakura. In another seven days, it has almost doubled. In a case where she is a day and a day late in paying, the platform starts sending messages to her entire contact list labelling her as a thief. Lagos, a young man, is a ride-hailing driver who borrows a N15,000 loan to fix his bike. He makes it back punctually over a period of months, but his credit limit does not change much. Rather, his information is repackaged on other portals, and he is profiled as owing more money.These tales exist across the whole continent. They are the symptoms of a system that becomes similar to financial extraction, which is disguised by the language of inclusion. The African digital lending boom is frequently celebrated as an innovation, but in reality it may run just like a new colonial infrastructure, and it is not carried out using force but rather through algorithms, information capture, and pressure to repay debts.From Taxation to Digital Dependence
Earlier colonialist governments would impose labour with a corrective form of tax regime. The digital lenders do not usurp the land and labour, they take away personal data, patterns of behaviour and future income today. The instant credit, short repayment cycles and obscurant pricing are helping to push borrowers toward a state of dependency. What is a form of access soon turns into a trap.Access to credit is not the adversary. Mobile lending is the sole financial lifeline to millions of Africans, small entrepreneurs and gig workers as well as continual traders. What is at question and the way that access is organized. Thousands of platforms work within the cycles of high frequency borrowing, undisclosed fees rather than the open interest rates, and practical annual rates of up to 100 percent to half a million. It can even cause automatic harassment to people other than the borrower when default occurs, such as friends, employers and family. These are not financial instruments. They are pressure systems.A Pan-African Pattern
Powerful credit ecosystems were established on early products in Kenya such as M-Shwari, Tala and Fuliza. They have gone viral and so has their criticism as the increase in the debt pressure and digital bullying incited the Central Bank to act.In Nigeria, dozens of quick loan apps, most of which are offshore related, were sanctioned by the Federal Competition and Consumer Protection Commission, and delisted. However, many we re-named and re-appeared. Unregulated fintech are increasing in Ghana, Uganda, Tanzania and South Africa due to increasing trends of mobile money. The trend is quite clear: technology at the cost of regulation, and profit at ethics.Regulation helps – but it is not enough.
African administrations are on the alert. They now license digital lending by the Central Bank of Kenya. Nigeria enforced stricter measures on the protection of data and outlawed organised blackmail and harassment for debt collection purposes. The South African government regulates the cost through the National Credit Regulator.These steps matter. However, they are reactive rather than proactive. It takes the negative pain of heinous public crimes or scandals before regulators take action. Because of this, it is devastatingly worse that with some fragmentation of enforcement, companies arbitrarily have been able to hop jurisdictions, moving between those with a stiffer movement system and those with a less stiff one.Africa should have standardised digital credit, preferably within the field of the African Continental Free Trade Area (AfCFTA). A common continental standard would be able to guarantee:
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- Complete transparency instead of masqueraded service fees.
- Limit in data-use and audit trails on data-use.
- Outlaw recovery methods based on harassment.
- Introduce egional borrower dispute mechanisms.
Even so, financial sovereignty will not be ensured unless regulation is upheld by banning coercive tactics used by lenders when trying to recover borrowed money from borrowers.Beyond Regulation – Towards Financial Sovereignty
Cooperative finance has a long history in Africa. These systems exist on social trust, community reinvestment, accountability. The challenge and opportunity lies in how to digitise these indigenous models rather than bring in outside templates that aim at extracting profits.Consider online lending cooperatives owned by users that have members who are also shareholders. Consider communal credit fund depositories, which are supported by open governance and split up. Consider having open-source credit-scoring systems, whose operation is directed by social organisations or co-operatives and not cartels and greedy private investors.Innovation would not be substituted by these models. Rather, with local ownership and dignity these models would redefine it. Authentic inclusion also needs to be participation in the governance, rather than the dependency of imported applications.A Financial Revolution -But whose?
The digital finance revolution that Africa has been experiencing is not imaginary, but a revolution is assessed in terms of results, not press releases. Does instant credit simply lead to bond citizens indebted to never ending cycles of micro-debt? Does it make the small traders strong or are the old extractive hierarchies being reproduced in a new form?The inconvenient fact is technology hardly transforms exploitation into a new era. It only makes it efficient. To solidify a future of actual empowerment brought about by digital finance in Africa, three things should occur:
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- The dignity for users should be a principle for regulators as much as compliance by lenders.
- The pricing of risk should be done on a sound rather than an opportunistic basis.
- Communities have to take back the data and credit ecosystems through which they are organized.
Otherwise, the continent will go through the old cycles of dependence in a new form: not using gunboats or contracts but rather with push notifications and API authorization.A Continental Choice
The process of lending digitally does not necessarily have to be colonial. But, unchained, it is coming dangerously near. It is not a debate about whether Africans should be given access to credit or not. Rather, it is a debate about who determines the terms, who is able to be profitable, as well as who is at risk?As long as extraction is a more powerful force than inclusion, then digital finance will merely be a modern rendition of an old play. African finance must subsequently be sovereign-based, transparent and locally-owned. Africa possesses the resources, the manpower and experience to develop systems that will serve people not, oppress them. The question is whether we will shape that future ourselves or once again let others define it in our name.
Evans Muchui is a digital finance and crypto analyst based in Kenya, focusing on fintech policy and the socioeconomics of financial inclusion.