Safcons FULIZA at 0.5% PER DAY. How can this not contribute to Ponzi economics. Please tell me this is not compounded.

First off, familiarise yourself with the meaning of a ponzi scheme, then we will talk.

Mobile loans are the kenyan equivalent of credit cards. Price control thro' rate caps never works the market will always find an alternative to meet demand for credit.

Situation in Britain.

1) There is a segment of society that finds mobile loans very beneficial to them. If you are not one of them, leave the loans alone. You don't have to eat everything on the Menu!

2) There are people who borrow and waste money. Even the "normal" loans from banks. Middle class has a habit of borrowing for consumption - Holidays, gadgets, weddings, holidays etc. Anyone with basic economics knowledge will tell you that is a very stupid thing to do! It is not the bank's responsibility to follow you and monitor how you spend money (unless it is something like asset financing etc). The bank's main concern and rightly so, is your ability to repay.

3) A major blanket default will never happen unless there is a major catastrophic event like a breakout of a major and sudden war. The lenders don't just wake up one morning and lend you 70k!!! They start small. say 1k and 2k and that grows depending on your history. The margins are huge enough to cover individual defaults, the risks are spread and the tenure of the loans are short. I don't see what event would lead Kenyans to default enmass on small to average amount loans. May be you should give us one or two examples of REALISTIC events that might lead to sudden (30 day window) MASS defaults!!

4) Banks are businesses. Not charities or the government. They deploy their money in the most profitable manner like all the other businesses or individuals. As bad as it might sound, it is not their responsibility to ensure that SMEs have access to credit (at an expense to their bottom line). That is why the government comes up with things like the youth fund, women fund etc. And it is not just banks.

5) To small businesses that need quick money to be repaid in days or few weeks, the interest is not exorbitant (many people have explained this here). When you compound, of course it is huge but the small business owners don't compound either theoretically (like you are doing) or practically. They pay within the 30 days in which period they will have made much money.

6) Finally, these products have a target market. I for one wouldn't go for mobile loans coz whatever I am doing would require a cycle of number of months (meaning the compounding would be real) and would need a larger amount than I would get via mobile loans. But if I was in a short cycle business like mama mboga, hawker, kiosk, restaurant, broker, most types of traders (getting potatoes from Kinangop, fish from Kisumu, selling uniform - I would need more stock in January compared to most months etc.) I would definitely take advantage of the facility if and when need be!

Alot of middle class guys are also using the mobile loans. Eg mwisho ya mwezi when your pay hasn't "arrived" and you need to fuel your car, or pay stima, water bills, DSTV, 3rd party car insurance, topping up rent etc people use the facility. Your mum in the village could urgently need some 5k to buy some medicine, and you are broke, then you can get the mobile loan and help.

Also you could need some urgent cash and the accountant in the office tells you that your salary or payment voucher will be ready at the end of the day so you just take the same day mobile loan and repay before midnight.

So it's not only mama mbogas and hawkers taking these loans. In the old days when someone was in a fix they would ask their friends (basically beg them) to lend them money but nowadays you just get the mobile loan. If you can get eg 10k "from your phone", why bother your friends? NB in old days your friend would still need some 2 beers for shukrani for the soft loan which is basically the equivalent of the interest you now pay for the mobile loan.

These mobile loans have afforded "credit card equivalent facilities" to the masses where you spend now and pay later. Sometimes you pay zero interest when you pay during the interest free repayment period.

Good people,

This sounds like a good topic for a Masters thesis. My background is in health so I am not well versed with how studies in commerce/economics are conducted. I am suggesting it to a friend who is doing an MBA. I am requesting suggestions on how such a study would be conducted with the key question being "What is the macroeconomic effect on phone microloans?" or "Do phone loans improve financial status of those who take them?" I am looking for how such a study would be structured, the methodology, any prior studies and what they showed.

Thanks in advance - wmakanga at yahoo dot com

Very true! And some people would be willing to pay the interest to save face or keep their stuff to themselves. Like a fellow whose gas runs out and decides to borrow through his phone 2k knowing very well he 200/= or 300/= on top but to them it is worth it as opposed to begging a friend for the money (who might still need the 2 beers). And in some cases friends might not be in a position or willing to lend. The fellow might have to air his business to like 5 or more friends.

I don't know why some people think all Kenyans are stupid and they need their wisdom to survive. A majority of borrowers know what they are doing. Of course there are some making stupid decisions just like we have people making stupid decisions in all other spheres of life. Nothing new or unique there.

And most of the borrowers have nowhere else to get those loans in the time frame they require them. It is not like one feels too lazy to go get a loan at 13% p.a. from a bank, Sacco or wherever. These people are not stupid!

And business owners don't know this and they need you to educate them???

Wewe uko na kashida kidogo. I am saying mobile loans pose a systemic risk and should be regulated. You keep saying I am trying to educate individuals about mobile loans. Those are two very different issues.