Financing the Disadvantaged

Dated Feb 12, 2020; last modified on Tue, 29 Nov 2022

Short Term Loans

A common narrative for loan providers is financial inclusion. 69% of global adult population is not covered by credit bureaus. Using non-traditional data (e.g. text messages, location, contacts, call logs), more people can get scored.

If only \(x\%\) of people pay you back, then \(\frac{x}{100}(1 + r) \ge 1 \) suggests \(r \ge \frac{100}{x} - 1 \). If \(75\%\) tend to pay back, \(r = 33\frac{1}{3} \%\).

If the rate is actuarily fair and is conveyed clearly to borrowers, is there a moral issue? If your math says lots of people will default and you choose to go ahead anyway, what does that make you?

Between 2016 and 2018, 86% of loans taken by Kenyans were digital. While ~50 fintechs have entered the field from 2015 - 2019, banks and MNOs dominate the market (97% of supply). 49% of borrowers of loans overdue for 90+ days owe less than $10.

So contrary to what suggests, tech startups are not dominating digital credit in Kenya.

That said, Kenya is a prime launching spot given the relatively weak currency and the ubiquity of mobile money.

Donors were too labor-intensive to find. Siroya’s InVenture (now Tala) was incorporated as a for-profit company. Users would text their income and expenses, InVenture would score them and license this score to banks. Banks weren’t that interested.

She pivoted to lending directly - starting with Kenya. Under analysts' pressure, they charged 15% fee for a 21-day loan (180% annualized). Borrowers that are late are charged a one-time late fee and barred from taking out another loan.

As CEO and Founder, Siroya probably influences decisions like no recurring interest payments. Putting her profits where her mouth is:

Intermediary lending orgs must monitor fund usage by partners, disavow predatory lending practices, and explore debt-free alternatives. Microfinance can only be successful if alongside community development.

The “180% annualized” makes it look worse than what Tala offers , e.g. a $100 loan for 30 days at 15% is not effectively 180% annualized, because Tala charges a one-time 8% extension fee, which makes the loan 23% p.a.

That said, Tala is probably fairer than its cohort. Given that there is little to no regulation, interest rates can be quite high.

In the US, personal loan apps on Google Play cannot charge an Annual Percentage Rate (APR) of 36% or higher.

Is the flood of lending apps in Kenya due to fewer regulations compared to markets like the US? Zooming out further, are there other examples of business flowing from highly-regulated areas to lesser-regulated areas?

In 2018, Tala spearheaded The Digital Lenders​ Association of Kenya , an attempt at self-regulation. Other efforts include stricter eligibility evaluations, subsidized health insurance, financial education, switching & monitoring debt collectors.

Why didn’t Siroya did respond to , which painted a grimmer picture.

Debt collectors have pressure to meet targets. Thus come the threats like humiliation and possession of property.

The debt collectors seem to be separate from the lenders. Lenders can claim plausible deniability, and rebuke exploitative debt collection tactics.

Effective Jan 31st, 2023, personal loan apps in Kenya will need a license from the Central Bank of Kenya before they can be listed on Google Play.


  1. Tech Startups Are Flooding Kenya With Apps Offering High-Interest Loans. Zeke Faux. . . Feb 12, 2020.
  2. Making Microfinance Benefit the People and Not the Sharks. Shivani Siroya. . Jun 28, 2010.
  3. Making Digital Credit Truly Responsible: Insights from analysis of digital credit in Kenya. Isvary Sivalingam; Olivia Obiero; Evelyne Matibe; Rahul Chatterjee; Karthick Morchan; Anup Singh; Leonard Kambona. . . Sep 18, 2019. Accessed Aug 5, 2021.
  4. Lessons From a Changing Lending Industry in Kenya. . Jan 22, 2020. Accessed Aug 5, 2021.
  5. Developer Program Policy: November 16, 2022 announcement - Play Console Help. . . Nov 16, 2022. Accessed Nov 29, 2022.