In Kenya, mobile lending apps have emerged as a convenient source of credit for individuals without traditional bank accounts or regular income. Among these, Tala has been a prominent player for over a decade, offering fast loans to Kenyans. This article delves into Tala's loan requirements, interest rates, and its broader impact on financial well-being.
Tala's Loan Offerings in Kenya
Tala offers loans starting from as low as KSh 200 up to KSh 50,000. This range is ideal for those smaller, urgent expenses like medical bills or school fees. Tala’s eligibility is based on your credit history, and once you’ve built a good track record, the app allows you to access larger amounts.
The process is simple: you apply via the app, and if approved, your loan is sent straight to your M-PESA account. Tala has been a staple in the Kenyan market for over a decade, offering fast loans.
Interest Rates and Repayment
Tala’s daily interest rates start at 0.3%, which, on paper, sounds like a small amount. But it’s important to remember that this rate is compounded daily, so it can add up fast, especially if you carry the loan for longer periods. Tala has three repayment options; a week, two weeks, and one month but they will not tell you the interest charge.
Tala offers a range of repayment options, including through M-PESA and at selected paybill numbers. They also offer an option to pay off the loan early, which can save you some interest if you’re in a position to do so. If you prefer a longer repayment period and want to keep your daily interest low, Tala’s terms are more flexible.
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As an example of the rates on offer, Tala currently offers 30-day loans with interest of between 7 and 19% per month.
Customer Service and Data Privacy
Customer service is often a huge factor when choosing a loan app. They’ve been around long enough to have refined their support channels, and most users find them responsive and helpful when issues arise.
Data privacy is important when you’re sharing personal information for financial transactions. Zenka also follows strict data protection protocols, and like Tala, they use your data to assess your creditworthiness.
The Impact of Digital Lending
A recent study of digital lending in Kenya reveals the benefits of relying on mobile phone data to expand credit access-improving financial outcomes and overall well-being even for individuals borrowing as little as $40.
Some 3.5 million of Tala’s 10 million global borrowers are based in Kenya, where about a quarter of adults had secured a digital loan by 2018. These digital lenders make credit decisions using nontraditional data from borrowers’ mobile devices, like transaction histories and travel patterns.
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These digital lenders make credit decisions using nontraditional data from borrowers’ mobile devices, like transaction histories and travel patterns. In many poorer countries, households lack formal credit scores, bank accounts, and tax returns on which lenders often rely.
A new paper forthcoming in The Accounting Review, “Digital Lending and Financial Well-Being: Through the Lens of Mobile Phone Data,” finds that these borrowers who are randomly approved for a digital loan saw bigger mobile money balances, higher income, better employment prospects, and even an expansion in their own social networks, says Harvard Business School Assistant Professor Jung Koo Kang, a coauthor of the new report.
Once granted the loan, the authors found that borrowers:
- Were nearly 24 percent more likely to be employed or self-employed than the control group of rejected applicants.
- Traveled to 9.4 percent more cities, suggesting boosted economic activity.
- Sent 27 percent more text messages, an indicator of social connections and expanding networks.
- Earned 21 percent more income each month, on a self-reported basis.
- Spent 15 percent more per financial transaction.
What’s more, the default rate for the small loans-defined as the percentage of loans unpaid for one year after their due date-is “relatively low at 5 percent,” the authors write. In contrast, other large digital lenders in Africa have default rates as high as 27 percent.
Tala used some safeguards to help ensure a low default rate-and to gain borrowers’ trust. These included:
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- Refraining from aggressive collection tactics.
- Limiting borrowers to one loan at a time; new loans were only granted once the first is paid off.
- Potential to earn larger loans the next time around by establishing a good track record with Tala.
Financial inclusion-defined as access to useful and affordable financial products and services that meet needs and are delivered in a responsible and sustainable way-rose from 26.7% in 2006 to 82.9% in 2019 in Kenya, driven largely by the growth of mobile money.
A 2019 survey on digital credit found that 13.6% of Kenyans had borrowed loans from a digital lender, citing their convenience and ease of access.
The privacy of app users has also been an issue for some time. Some digital lending apps have been accused of collecting data on location, call records, and text messages, many times from unknowing customers, to make financial decisions.
They have also been accused of using data from borrowers’ phones to shame them when they default on the loans, in some cases making threatening calls to the borrower, and sending text messages to contacts in their phone books.
Citing public complaints over the misuse of the credit information-sharing process, the Central Bank of Kenya (CBK) last year stopped digital lenders from forwarding defaulters’ names to credit reporting agencies. It also stopped the blacklisting of defaulters for amounts less than $10.
The new bill seeks to have the CBK, the country’s monetary authority, license and regulate digital lenders. Currently, the authority licenses, regulates and supervises deposit-taking institutions.
Table: Comparison of Tala and Zenka Loan Features
| Feature | Tala | Zenka |
|---|---|---|
| Loan Amount | KSh 200 - KSh 50,000 | Up to KSh 200,000 |
| Interest Rates | Starting at 0.3% daily | 0.3% - 0.8% daily |
| Repayment Options | M-PESA, Paybill | Flexible repayment options |
| Customer Service | Responsive and helpful | Direct contact with representative |
In the end, both apps are reliable options for accessing quick loans in Kenya. Tala might be a better choice if you prefer predictable loan amounts and interest rates, want longer repayment terms, and appreciate a more personal approach to increasing your loan limit over time.
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