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[Music] quite interesting feature there on what the mobile space is transforming to and speaking about mobile and to a story that is gripping headlines in the country the national assembly has cleared a bill that seeks to regulate mobile loan rates and treatment of defaulted credit this is poised to protect borrowers from predatory lending that has been growing severely if the bill is passed it hopes to bring tons of digital and mobile lenders under the watch of the central bank of kenya the central bank of kenya amendment bill of 2020 is now before the national assembly committee on finance and national planning where kenyans and other stakeholders will be invited to give their views before it is taken back to the house for debate and vote well i'd like to bring in on the program right now we are joined virtually by the general manager at tala and that is ivan amboa thank you for making time for us on the show thank you good afternoon i just want to get your immediate reactions when you hear of this bill that is in parliament and a discussion what does it mean for the many coming the companies that are in the space you are in um so i think that contrary to public opinion um a number of digital lenders are actually aligned for the need for regulation of our space um the critical caveat being that we want to make sure we reach a win-win between balancing consumer interest but also not stifling growth and innovation so we are encouraged by honorable bidding guitars bill having gone to the first reading of parliament in addition to the late honourable yokas also cbk amendment act which was also had a first reading compartment last year and what we're looking to do is to make sure that we can address some of the very real issues that we've also seen in our industry and i'll speak about a few of them we have seen a few bad apples and i must repeat again a few bad apples engage in unscrupulous practices when it comes to how they do debt collection you might have heard cases of you know people contacting a borrower's entire contact list like trying to recover funds or you might actually hear about some unscrupulous lenders going ahead and providing very unclear contract terms to consumers where you don't necessarily know what you've entered into until they're trying to collect in your loans and some other practices such as that and so we as a tala and also being a member of the digital lenders association in kenya we stand very clear um in our belief that that is not a way to conduct business we have actually um been able to establish the same levels of uh fair play within our own code of conduct all right and we believe that once we have regulation it will mirror the code of conduct all right and uh perhaps for the sake of our viewers the prevailing market rates for a simple loan of say 2 000 shillings when you when you come to the mobile apps of course they're quite a number and some of the concerns are around having a uniform rate perhaps how will this impact on your business model um i think that having a uniform rate depending on how that particular proposal is affected uh could have different effects on business models not be specific um i think that we've seen in the past that trying to put an interest rate cap right so trying to essentially put an artificial cap on how high pricing can go has not worked well for the economy the consumers when the national assembly passed a similar bill on banks we actually saw the amount of credit going to the economy shrinking um and so we actually believe that the best way of doing that is what we call risk based pricing so it is our hope that we will be able to work with parliament and also with our future regulator the central bank of kenya to find a way to really enforce what we call risk-based pricing which is to ensure that instead of trying to make sure everyone prices the same rate we want to ensure that the rate that you receive as a consumer reflects the amount of risk that you present to a borrower so for example if you're a very good borrower you should not pay the same legal interest as someone who's a very bad borrower so there has to be a range or else you find that you're distorting the market and you're giving the wrong signal so that people who are bad borrowers and likely to default uh are essentially paying the same rate as a good borrower and i think that does not really work well in a market context all right and looking at this drive to sort of place a a a rate cup for mobile digital lenders and as we speak pay for us a picture of how big the industry is how much is it worth and perhaps if a rate is eventually adopted how will this significantly affect the margins that you get out of the loans that you offer so the industry can be a little bit difficult to size but i'll give you a few metrics that we can perhaps use um so in terms of number of players the non-bank fintech sector is estimated to be anywhere from 100 to 300 plus players um over the past couple of years you've almost seen new players entering the market each week so we believe that the market's about 100 to 300 in terms of the size of the industry um through past a research and that has actually been released by people such as financial sector deepening they have estimated that non-bank digital lenders are perhaps only five percent of the total industry so put that in another way banks contribute 95 of almost all the credit that is going into the market with non-banks like ourselves representing about five percent um we believe that of course if we were to have a an interesting cap that was placed in it would dramatically reduce the amount of credit that's been placed in economy and i think especially based on covet that happened last year we've also seen banks pull back from their previous aggressive lending and digital credit so i think the the net net effect would be more than just the five percent we used to represent pre-pivot you could actually see uh credit in the form of digital credit pulling back perhaps more than ten percent in a worse case scenario and that would i think be a little dangerous for the economy given our sort of post-covet attempts of revival all right and finally as we wrap it up i'd like to get uh your sentiments around are you of the view that some of the lenders like you say that we can't miss a few bad apples some of the lenders have they misused this platform from the sense of view where we're seeing a lot of young people getting into their culture of borrowing money we also get the talk of quite a number of them after they get the loan they throw away the sim card and you register fresh just in a way to beat the system how dangerous can this be for an economy where we are looking at a time and space where we might experience uh what what they call a credit bubble bust um yeah i think you read some really interesting points uh the first thing first is that i do believe that there is a worrying trend that we're seeing in kenya which is that the consumers are increasingly becoming indebted so just to give you a data point um you have one of the credit reference bureaus called transunion releases a report on digital credit and they have shown that the average kenyan consumer has gone from having about four mobile apps on their phone in 2018 in 2019 that went to about eight and by last year it was about 12. so you're sort of finding that you know in simple terms in less than two years the average kenyan has increased the amount of digital credit apps that they're using by three times and obviously at the same time we have not seen an increase in income right of the average kenyans so what that actually shows is that there are a few consumers that have not been able to really balance the need to be responsible borrowers with the availability of credit and as a result you begin to actually see some behaviors which we talked about where unable to pay some borrowers not all i have to say some borrowers will go to the extension perhaps trying to throw away their sim card or trying to invade that collection i think at the end of the day it really damages three groups of people you know one it damages that for itself because of course they're building up a negative history um and also good borrowers and of course lenders themselves all right thank you so much ivan maboa for speaking to us and quite some interesting aspects that you brought up in that particular discussion well we do hope this will be taking some new dimensions when it comes to what happens in parliament well went