Short-term lenders and the ‘Central Bank of Google’
Digital, short-term lending is a worldwide phenomenon, but most widely used in Africa, and some say its wildly exploitative
New York — In August, Google announced a global crackdown on Android apps that offer short-term loans, saying it wanted to protect consumers from what it called “deceptive and exploitative” terms.
But five months later, payday-style applications offering fast money for one or two weeks are still easy to find in many countries on Google Play, the company’s marketplace for Android apps. Some charge interest rates that can exceed an annualised 200%.
Lending apps are particularly popular in developing nations such as Nigeria, India and Kenya, where millions of people don’t have bank accounts or credit cards but do have mobile phones. The epicentre is Kenya, where an explosion in mobile lending and little government oversight has effectively made Google the arbiter of which apps customers can choose.
Despite the ban on loans that have to be repaid in fewer than 61 days, many apps available through the Google Play store are offering shorter terms to Kenyans. Some lenders appear to be ignoring the rule, hoping Google, a division of Alphabet, doesn’t notice. But there’s also confusion about whether the policy really prohibits short-term lending.
Dan Jackson, a Google spokesperson, declined to explain why short-term lending apps are still featured. “When violations are found, we take action,” he said in a statement. He wouldn’t say how many such actions have been taken.
Branch International, a San Francisco-based start-up that’s a major Kenyan lender, said it was told it could comply by offering both a longer-term option and a shorter-term one for each loan. “The 62-day loan is just one option, and they can choose shorter loans if they want,” said Mojgan Khalili, a Branch spokesperson. Another California-based lender with a large Kenyan business, Tala, has a similar policy that it says complies with Google’s rules.
But Jackson insisted that the policy prohibits any apps offering short-term loans.
Other fintech companies appear to have dealt with the new policy by adding language to their Google Play descriptions stating that they offer loans two months or longer. But users often post complaints on the site saying they can’t borrow for nearly that long.
Kenya’s digital credit boom was made possible because a large share of the country’s population uses mobile-money accounts for daily payments and expenses
Of the 10 most popular free Google Play apps in Kenya on January 15, five were lending apps, according to a SimilarWeb ranking. All five claimed to offer loans of at least 61 days, and all of them fielded complaints from users about being offered much shorter terms.
One customer of the top-ranked app iPesa complained in January that while the Google Play description promised loans of more than 60 days, he was offered a shorter term. “You can’t keep repayment period at 14 days,” the customer wrote. “Who are you guys kidding?”
Nairobi-based iPesa didn’t respond to an e-mail, a Facebook message or an inquiry through its customer-service phone line.
Another top-10 app OKash came under attack last week by investment firm Hindenburg Research. The firm issued a report asserting that the app and others made by Opera, the Norwegian developer of the Opera web browser, violate Google’s policy because they offer only short-term loans, despite claims that longer terms are available. The report also says that Opera’s apps charge rates that can exceed 300%.
Opera is employing “deceptive ‘bait and switch’ tactics to lure in borrowers and charging egregious interest rates”, wrote Nate Anderson, Hindenburg’s founder, who said he is betting on Opera’s stock to fall.
Oslo-based Opera, controlled by Chinese tech billionaire Zhou Yahui, said the report contained unspecified errors and that all of its apps comply with the policy because they offer repayment terms of more than 60 days. Google declined to comment on the Opera apps. At least one of them disappeared from Google Play after the Hindenburg report, but it has since been restored.
Even on the Google Play site itself, lenders sometimes openly acknowledge offering only short-term loans. “You can select one up to 30 days,” wrote a representative of Nairobi-based Zenka Finance in December to a customer who asked about repayment terms.
Zenka, fifth in the SimilarWeb ranking, disappeared from Google Play last week but was later restored. Duncun Motanya, Zenka’s Kenya country manager, said via e-mail that he didn’t know the reason and that Zenka complies with Google’s policy. “I suppose, with all the fuss around finance apps, Google scrutinise us more,” he wrote.
Google unveiled its new policy in August and gave lenders one month to comply. In the US, it also set a maximum annual interest rate of 36%. The company imposed similar restrictions on web search results for lenders in 2016.
“Our Google Play developer policies are designed to protect users and keep them safe,” said Jackson, the company spokesperson.
Google’s policy reflects the growing power of big technology companies to shape global commerce, Matt Flannery, Branch’s co-founder and CEO, wrote in a blog post on Wednesday. He called the company the “Central Bank of Google”.
Countries have radically different lending markets, so a single, global, two-month rule doesn’t make sense, Flannery wrote. After Branch began offering the two-month option to comply with its understanding of Google’s policy, few Kenyans chose the longer repayment term, but in India, where Branch also operates, one-third of new customers did, he said.
“Instead of iterating on a single global rule for the world’s lenders,” he wrote, Google “should just defer to the actual central banks”.
Kenya’s digital credit boom was made possible because a large share of the country’s population uses mobile-money accounts for daily payments and expenses. The most popular service, M-Pesa, was started more than a decade ago. That created an opening for online lenders pitching short-term loans that could be funded and repaid through phones.
Over the past few years, dozens of loan apps have sprung up in the country. They offer short-term loans of as little as a few dollars at high interest rates to everyone from office workers in Nairobi to village street vendors. Millions of Kenyans have borrowed.
A September study by MicroSave Consulting said that 91% of loans in Kenya in 2018 were digital. The apps are controversial, criticised by politicians for taking advantage of poor people.
“What the mobile lenders are doing is ripping off Kenyans,” Jude Njomo, a member of Kenya’s Parliament, said in an October interview. “Who could ever do business paying the high interest rates?”
In Kenya and other nations where mobile lending is popular, many users have never borrowed from a bank before and have little experience with financial contracts. Google’s policy was aimed at pushing developers to longer-term loans, which are often easier for borrowers to manage.
“People go for the loans out of desperation for money,” said Gilbert Kiprono, who works for a mobile-phone company in Kitale, in western Kenya, and has borrowed from mobile lenders. “They are easily available but highly exploitative.”
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