What do we know about Digital Lending in Kenya?

There was contempt regarding the digital lending rules and regulations that can cause constriction over the digit lending process. The parliament passed the digital lending laws. The central bank has been dealing with the consequences of the regulations of the digital lending process. 

Now, steps can be taken if many lenders have taken some odd approaches to recover their bad loans. The Annual Percentage Rates have reached 100 percent per annum. The Annual Percentage Rates are nothing but a measurement of the total credit payment. These have been imposed upon the digital lenders as an extra burden.

Evolution of Digital Lending in Kenya

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The digital lending system has brought a massive change to the lending system of Kenya. It has become possible due to the infusion of the new technologies that have been introduced in the market. Let us compare the present with the past, and we would see that people nowadays are more engaged with smartphones. They manage to do most of their tasks on their smartphones. 

The digital access of the customers has made it easier to deal with lending online. It has boosted up the craze of digital lending. Now, Kenya has a unique fintech environment that has driven growth more accessible not only for the digital lending process but also for the digital market and the digital lending market. Some factors are responsible for the rise of digital lending. Some of the elements are; technology or digitalization, security of data, reduced time spent, experiencing hassle-free and smooth procedure, usage of e-KYC

Digital lending solves maximum problems that people may face in this new age. Besides, there are other benefits like; no physical documentation required, minimal interest rates, transparency in the lending process, and varieties of options in emergency cases. Additionally, the financial technologies implemented in the market have made it easier for both the borrowers and the lenders to abide by the procedures as it has become less complicated than before.

3 Business Models that exist within the Lending Process

Image Source: CGAP

It is pretty tough for a commercial lender to survive in the competition in the digital market. It is tough! 

A lender who provides loans to small and medium businesses has faced many challenges in the erratic process of globalization. If we consider how a person wants to avail a loan, we will

understand. Making a personal business model involves analyzing the total amount of investments a person will require, chalking out an effective business plan, and figuring out whether a business person needs to avail loans or not—a lot of decisions to undergo. 

On the other hand, some unfortunate situations like financial crises, regulatory changes made by the government or any authority, unemployment, and a sudden world crisis like the pandemic have brought considerable changes in many lives. These situations have affected both the lender and the borrower.

However, like smartphones, laptops, and cloud data, other technologies are becoming part and parcel of our lives. Online data is becoming a must in our day-to-day lives. Customers crowd demand more from online services than offline. So the business leaders are shaping their businesses as per the ecosystem. Just like that, the lenders must change to satisfy the customers in the online market. There are a few tips that can help in this process. 

  • Try to expand the lending process online by making enough connections and starting from essential functions. 
  • Try to do a business on it. Build a user-friendly website. Chalk out a plan on constructing an effective lending business. 
  • Try to increase profitability. Try to impress customers with the help of various aspects, down to detailed settings of the website.

Direct Consumer Lending 

The direct lending process is a primary level of all the methods small to big lending companies use. This model is not like the normal process of lending. There are some unique features of it. The system makes the decisions and helps the lenders decide which customer to choose to give them the loan. 

It uses the scoring process that analyses the whole system and provides results. It determines how much money the lender should provide to the consumer. Many strategies enable the customers to lend against their wages. But, the lenders have to stick to the company’s payroll database. 

But both consumers and lenders must be aware of frauds and must always do verifications, report defaults, and proportional distribution of money.

Buy Now Pay Later

It is a new method of customer space. A new small nook has formed within the financier by this method of buy now pay later. This new business structure is inspired by some international performers like “Affirm,” ” Klarna,” and “Afterpay.” The retailers can perform their tasks online and offline( the job means the checking out process). 

Supply Chain Finance 

Supply chain finance is a process in which the blue chains or the supply process is digitalized. The method of financing is also included or attached to the value chain. All the stakeholders, the claims, and counterclaims will be carried out by referencing invoices and purchase orders.

Is Digital Lending a Panacea?

Image Source: The Conversation

Digital lending is now a vital part of the whole financial process. Due to the massive development of technologies worldwide, people are primarily involved in every aspect of their lives online. The Internet is now a basis of lifestyle. Many people use the phone to pay or internet banking rather than just giving away their changes. 

So maybe we can say that digital lending can solve many things and shape our lives differently. But that does not mean it is a panacea. There are still risks regarding that. That needs to be figured out. As mentioned above, both customers and lenders should follow some security protocols to prevent financial accidents and issues. 

The Botomline 

Digital lending can change the whole lending process in Kenya. It can be a motive of competition in the market as well. Pirimid Fintech, helps banks and NBFCs in digitizing their entire lending journey. It has helped clients across the globe in digitizing their lending journey.

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