Digital lending is the process of offering loans that are applied for, disbursed, and managed online. The process is designed to fulfill the unmet credit requirements of consumers who do not have access to loans via traditional banking channels that require collaterals for loan approvals.
In Kenya today, both banks and non-banking financial companies (NBFCs) are using multiple digital channels to design and remotely deliver loans to consumers, who were previously underserved due to lack of awareness as well as physical presence of financial institutions across various geographical locations in the country.
Credit companies like digital lenders use increasingly digitized and accessible customer data to authenticate borrower information and verify credit scores using advanced analytics, artificial intelligence, and machine learning tools to offer loans digitally.
The credit garnered through digital loan apps like OKash, CreditHela, Tala, OPesa among others can be used to pay for all kinds of expenses, from little-price items like a basic smartphone to high-price expenses such as education courses, business or commercial farming.
Different Models of Digital Lending in Kenya
a). Online Lending/Digital Lenders
Online lenders are financial service companies that provide end-to-end digital lending products via websites or mobile applications. Digital lenders lend on their own loan books by processing their loans digitally.
b). Tech-enabled Lending
Tech-enabled lenders are traditional financial service providers that have digitized parts of the lending process, either in-house or through partnerships. This has helped them expand their lending capabilities for consumers.
c). Mobile Money Lending
This is a partnership model where lenders work with mobile network operators to offer mobile money loans to their customer base by leveraging mobile phone data for scoring.
Things To Consider When Taking a Loan Digitally
Before applying for a loan, it is important to know what the end goal is, how much money is required, what all products are on offer and what is the ideal personal loan that fits the bill.
Digital loans can be from traditional banks as well as digital lenders. It is important to compare loans, contact lenders and seek all the necessary information.
Get the right application for digital loans
The application process for digital loans is either web-based or app-based. Users need to fill in personal details such as name, address, ID number, mobile phone number among others.
To ensure a seamless application experience, users must ensure there are no errors in spellings, dates, typos while filling the digitized forms and answering the questions within these forms. It is important for the user data to match the corroborating documents. This will eliminate verification discrepancies.
To increase chances of securing a loan, one must be aware of their financial health and credit scores. Timely repayment of loans helps in maintaining a good credit score, thereby increasing your chances to secure a new loan.
Choose your lender carefully
Once you have figured out what kind of loan is required, it is important to choose a genuine digital lender and not fall for fake loan applications available online. This is your first point of checks to authenticate the digital lender.
Android phone users must check if the digital lending application that they have chosen, plays by the Google Play Store regulations.
Steer clear of scams
The Central Bank of Kenya has on several occasions stated that many borrowers have been victims of digital lending scams to get quick and hassle-free loans.
Here are some common red flags to spot digital loan scams:
- The lender is not interested in your credit score or payment history.
- The lender demands a registration fee.
- The lender has no physical address.
- The lender does not have a secure website.
- The lender guarantees immediate approval and pressurizes you to decide quickly.
Evaluate online reviews
Customers posting on search engines like Google, as well as on app stores such as the Play Store usually have the best insight into the experience of working with a lender.
Check transparency of the credit rates, and tenure
Lenders charge different interest rates, which are directed by the lending institution’s risk policies. Before applying, you should see that the lender has disclosed all the charges explicitly in the application and has communicated a detailed break-up of all the charges.
Be aware of the payment charges, processing charges and penalties
Lenders may charge a processing fee, exclusive of applicable taxes, which is then deducted from the loan amount. Consumers must be careful about the breakup of the charges, to eliminate any surprises in the future. They must also check for repayment rules to ascertain if a loan can be repaid before the date of its maturity.