The headache that is in lending Apps

A woman reads some information about lending applications online. PHOTO /BETTY NDAGIRE

What you need to know:

  • Lending apps are pushing Ugandans into debt traps by offering “instant loans.” But the high-interest rates on these short-term loans have left many in a financial hole. 

In a span of 30 days Ms Flavia Birungi, transitioned from being a much sought after customer to the most wanted - this time, dead or alive.

In an interview with the Prosper Magazine, the Makerere University student, says one morning as she logged into her Facebook account, an advert for a Fintech app flashed up.

Normally, she doesn’t pay much attention to many of these, but this very one caught her attention as it was about something to do with low interest cash. Given the tough economic situation, characterised by biting inflationary pressures, anything, according to Ms Birungi, connected to easy or affordable money sounds appealing.

Further, the advert promised to go about the whole deal discreetly and swiftly. In other words, you can get the loan within “no time” without divulging much information about yourself.

The only requirement she needed to fulfil is download the app, then enter her financial details, and shortly thereafter the algorithm will generate a credit rating. And get the money/ loan repayable within one month.

When applying for a loan online, there is an option requiring the applicant to allow access to their phone contacts, call logs, photos, and SMS among other things.

“I first borrowed about Shs350,000 and repaid it within one month with an interest of Shs150,000. That then enhanced my profile by slightly elongating my payment deadline.”  
Guaranteed of more time to refund the borrowed money, she increased her slate to about Shs500,000 in the second time of asking. Little did she know that she signed up into a death trap.

Although she needed it for a good cause — topping up her hostel fee, she started getting reminder calls even before the deadline day for repayment.

With chagrin, she said: “I could get repeated calls. I regretted why I signed up for this inconvenience. They kept calling constantly reminding me to repay.”

She continued: “When you least expect them to call, the phone rings demanding for the money you borrowed from them.”
But the worst part is how they interact with you when the refund date elapses before you come clean on your payment.

“Will you repay your loan?” somebody will arrogantly shout at the other end of the call?” Birungi recalls.

They even threatened that they would notify everyone on her contact list that she is a defaulter and therefore shouldn’t be trusted – a name and shame kind of blackmail game common in virtual spaces these days.  

As fate would have it, she defaulted. And it didn’t take long before her mother, friends and many of her contacts were being threatened.

She got a call from her mother who was sobbing fearing for her daughter and her own life. The caller had told her mum that her daughter is a thief and they were going to arrest her.

So what took a minute to apply for is now sending her close relatives in panic and tears.  
“Not each and every application you make on these money lending apps is doomed a success. They can give you Shs350,000 but they note that they have lent you Shs500,000.Some of the attempts to secure a loan were not successful,” Birungi says.

Other than that Birungi claims their (money lending apps) interest rates are exploitative as they are over exaggerated. Already they had collected 150,000 interest. When you repay you always make a double payment.

She says when you access their apps many show that the borrower has up to 30days to repay the loan. But as soon as they send you the money they begin to reduce the number of days.

When asked why she keeps returning to the exploitative app her reply was, “…you are forced to return to borrow, despite their ill treatment because sometimes you need some money urgently and they are the only option you can run to.”

Uganda Communications Commission (UCC) describes the mobile lending apps that the predatory lenders use as agile.
The UCC executive director, Ms Irene Kaggwa-Sewankambo, likens the situation to when “loan sharks or money lenders first exploded in the financial scene” in the country.

Due diligence
Ms Kaggwa says after doing their homework, the people that the apps target should “always be cautious.”
The UCC regulates the telecommunications services and infrastructure on which the predators literally hide in plain sight. The regulator works in tandem with the Central Bank that provides technical advice and chips in with interventions when necessary to guarantee security of the digital financial or fintech industry.

 In an earlier interview with the Bank of Uganda (BoU)  director of research Dr Adam Mugume, it became clear that the Central Bank can only do so much.

Dr Mugume in the earlier interview with the Daily Monitor said: “Mobile lending apps are not under the category of BoU Supervised Financial Institutions.”

This, therefore, means the Central Bank cannot sanction the predatory lenders using the apps to inconvenience or fleece the unsuspecting victim. The National Payments Systems Act 2022 formalised the regulatory oversight of BoU over digital financial services like mobile money operating in the country. The Central Bank admits to being powerless when it comes to predatory lenders whose web of deceit could be transnational.

“Consumers should be advised to disassociate from unregulated financial service providers. Otherwise when they face challenges, no regulatory institution would have the mandate to intervene on their behalf,” Mr Mugume warned, adding, “If consumers of financial services feel cheated by a financial services provider supervised by BoU, we have a customer complaint desk that handles such complaints.”

Prosper Magazine called the number on one of the apps posing as an interested client. The lady on the other side of the call said the interest is between 3 and 10 per cent depending on how much one wants to borrow.

“When asked how much interest they will charge for the loan of Shs200,000, , her response was that she cannot tell, as she is only a customer care provider and it’s the accounts officer who computes that,” the female voice on the other end of the line told Prosper Magazine.

She also claimed their business is a digital microfinance institution. The borrower takes the initiative of sharing photos of your business and they do not interest themselves in visiting your business, before lending you money.