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NAIROBI — Tight economic conditions are helping drive a boom in Kenya’s buy now pay later (BNPL) credit sector, with more people paying in installments for higher-priced purchases.
But the imminent introduction of regulatory oversight promises to shake up the sector.
BNPL payments in Kenya are expected to grow by 16.8% on an annual basis to hit just over $1 billion in 2024, according to a report by ResearchandMarkets.com.
Motorbikes, smartphones, solar panels, and cooking gas cylinders are among the most commonly purchased items under BNPL arrangements in Kenya. Credit card penetration is also low at just over 6%, limiting options for consumers.
With real wages on the decline for the past four years due to inflation, and unemployment high, BNPL offerings have become increasingly attractive to many in the country.
But proposed legislative changes are expected to have ramifications for the sector. The amended Business Laws bill would enable the Central Bank of Kenya to control interest rates set by BNPL companies.
The proposed changes were prompted by widespread concerns over cases of predatory lending and exploitation of customers by BNPL firms. A similar regulatory crackdown on digital lenders in 2021 forced numerous digital loan services out of the business.
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Strong growth in Kenya’s BNPL sector has also been attributed to increased e-commerce penetration. Several asset finance startups have gained a foothold in the space in recent years, such as LipaLater, M-Kopa, Aspira and FlexPay — and raised significant sums from local and international investors.
Major banks, such as I&M and NCBA, have also introduced BNPL offerings.
Kenya’s largest telco, Safaricom, secured an exemption from the proposed regulation for its Lipa Mdogo Mdogo offering — a BNPL service that allows customers to purchase smartphones and pay regular installments via mobile money. Key features are disabled in instances of non-payment.
Martin’s view
BNPL firms in Kenya have been under pressure over alleged predatory lending, fueling the push for regulation. They are accused of preying on Kenyans with low incomes to offer high interest asset loans, and deploying aggressive measures against defaulters. Among those most affected are motorcycle taxi riders, known locally as ‘boda boda,’ many of whom purchase the bikes via the BNPL firms.
“It becomes a struggle to pay every single day when you still have other expenses like fuel and food,” Brian Ndahurire, a boda boda rider in Nairobi, told Semafor Africa.
In October, Kamau Munyoro, a local lawmaker, presented a petition in Parliament calling for an investigation into BNPL companies and their operations in Kenya. The MP, who also serves on the National Assembly’s Finance and National Planning Committee, gave an example of one of his constituents who had a motorcycle repossessed despite having already paid 250,000 Kenyan shillings on a BNPL loan worth 260,000 shillings.
“I questioned how someone could pay so much and still lose the bike,” he posed. “When we summoned these companies, we discovered they operated without proper regulations and set their own interest rates.”