Bringing sanity to the digital lending space

Tala East Africa General Manager Ivan Ombowa.

It is now easier to access credit more than ever, thanks to the proliferation of digital lending apps in the country.

Among the players in this space is Tala, a mobile and data science company that is leading the scramble for customers seeking quick mobile loans. Financial Standard spoke to Ivan Ombowa, the firm’s East Africa general manager, about wide-ranging issues affecting the industry.

How was the idea to start Tala conceived?

Five years ago, we started with a smartphone-based credit product, which allowed Android users to be evaluated on their creditworthiness and be able to access credit from Sh1,000 to Sh30,000.

Previously only banks gave credit and depended on collateral. Many of our clients did not even have a record. Our model allowed them access to credit without collateral.

How has the business fared so far?

Since we began five years ago, we have served over 2.5 million Kenyans. We have been able to expand this model into five other countries. When we started out, it was almost like a grand experiment; we have been able to prove that it works.

Who is your target market?

Our target market has been those who are underserved: those who are not able to access credit or financial services. Initially, we were solving a problem in the market, but later we came to the realisation that over 75 per cent of our loans are being used by small businesses.

Has the credit range changed five years on?

We still give clients between Sh1,000 and Sh30,000, but we expect to change this going into the next five years. As we evolve our products, we want to be able to cater to new clients with new amounts.

How much does the average borrower go for?

The majority borrow around Sh10,000 on average.

How would you rate yourself compared with the competition?

At the moment bank-led fintechs are the top players. I would say we are number one among non-bank digital credit providers.

What has been the greatest challenge in the last five years?

Challenges change from time to time. Today, there are a lot more players in the market. Some of the new players have exhibited questionable behaviour that has not been beneficial. This has led to an increase in the calls for regulation of digital lending.

We need to distinguish between good and bad actors. We have formed the Digital Lenders Association of Kenya, which brings together about 15 digital lenders who have agreed to sign to a code of conduct. This is a form of self-regulation. The third challenge is the lack of financial literacy.

What do the regulations seek to address?

For instance, without naming names, there are players who when they are trying to collect their loans would engage in practices that are very much shylock-like.

They would contact your phonebook contacts to ask them to help them ask you to repay your loan.

And Tala doesn’t do that?

No. We have never.

Are there any other concerns?

There have also been concerns about some of the money going to digital lenders, for instance, recently during the demonetisation exercise. There is a need for greater scrutiny about where our money comes from and to whom does it go to.

Thirdly, we may need to reconsider how we communicate terms to customers. For instance, it is not clear to some borrowers that when they default, the interest may continue to accrue indefinitely.

Some allege that the so-called 15 ‘good actors’ just want to lock out smaller players in the name of self-regulation. What do you say about this?

No., that is not the case. But I will tell you this: in forming the association, we are definitely separating ourselves from others based on how we conduct ourselves.

At what point do you list a defaulter with the Credit Reference Bureau (CRB)?

Somewhere between the due date and one year.

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