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Mobile Loans Ponzi
Rank: Member Joined: 1/22/2015 Posts: 682
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MaichBlack wrote:
Banks are not sitting on cash. They are just deploying it more sensibly and profitably while being cognizant of the risks vis-a-vis income.
And this is nothing new. Even small scale business people know this stuff. There are businesses that don't sell items you would expect them to be selling because of careful analysis - profit margin, how fast you can move the items, risks etc.
Yes, but banks have so far struggled to come up with a credit scoring method for the lower end of the market. Safaricom has created that using MPESA technology. If banks had somehow tried to get into the payments market earlier on(maybe through debit cards), they would have had good credit scoring methods and MPESA would be a fly in the soup. Now they own the credit scoring MPESA data and they are being very kind with it, giving it away for free. I would not be shocked if in future start charging loan apps a certain fee for MPESA data queries. Pay up or no paybill number for you.
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Rank: Elder Joined: 12/4/2009 Posts: 10,809 Location: NAIROBI
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Mike Ock wrote:MaichBlack wrote:
Banks are not sitting on cash. They are just deploying it more sensibly and profitably while being cognizant of the risks vis-a-vis income.
And this is nothing new. Even small scale business people know this stuff. There are businesses that don't sell items you would expect them to be selling because of careful analysis - profit margin, how fast you can move the items, risks etc.
Yes, but banks have so far struggled to come up with a credit scoring method for the lower end of the market. Safaricom has created that using MPESA technology. If banks had somehow tried to get into the payments market earlier on(maybe through debit cards), they would have had good credit scoring methods and MPESA would be a fly in the soup. Now they own the credit scoring MPESA data and they are being very kind with it, giving it away for free. I would not be shocked if in future start charging loan apps a certain fee for MPESA data queries. Pay up or no paybill number for you. Kila nyani na soko lake,there is a mkt for banks and for safaricom fuliza Wealth is built through a relatively simple equation
Wealth=Income + Investments - Lifestyle
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Rank: Member Joined: 2/20/2007 Posts: 767
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bwenyenye wrote:Good people,
These are very great arguments on either side.. My few observations
1) The mobile loans are here to stay and they fulfill a certain part of the financial deepening circle. Convenience, not cost, is their critical success factor for now. Cost will come much later
2) These loans, like all other loans, will build many and destroy others. It depends on how one chooses to use them. Heck, there are guys who bet for a living and you'd be surprised the kind of turnovers they do. Forget the Jack pot guys
3)It is true that like all lending, mobile loans need proper regulation especially if it can hit Ksh8B in a month from one platform. We can imagine the impact and pervasiveness of the sector.
4) The biggest risk is that the small businesses,with short cycles and not so large investments are usually the most vulnerable to social hits e,g riots.. But that can always be mitigated by insurances
Finally, I see this a a new step in the evolvement of the financial sector. First, Kenya had foreign banks, then Nationally owned banks came in and they limited the licencing. To cater for the unmet market and especially for SMEs then, they formed Finance houses ( the likes of I&M, ABC, etc).At one point, these were also granted banking licences and the have done a dime well for themselves. When the licencing was stopped, we saw the growth of MFIs... and now we see Micro lending platforms... In essence, banking is changing and it is for the better.
I like the innovation, it has its risks but it is surviving because it has more advantages than disadvantages. We just need to figure out how to mitigate the risks.. I agree. Mobile loans are here to stay but need to be regulated. They pose significant systemic risk and this should be looked at and mitigated They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 1/1/2011 Posts: 396
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tom_boy wrote:We need this mobile lending to be regulated. China realised this fact in 2017. Are we bigger than China? Are we special in a way to make us not feel the effects of such reckless lending? I agree. But this is not reckless lending. It is smart lending from a purely business perspective. Not condoning it, but who would refuse to lend at 90% per annum, with a portfolio of, say KES10Mill comprising multiple smaller loans of around KES 1k. Even with a 50% default rate, you are still in the money. So the lending is not reckless, but obviously far from ethical.
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Rank: Member Joined: 2/20/2007 Posts: 767
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jmbada wrote:tom_boy wrote:We need this mobile lending to be regulated. China realised this fact in 2017. Are we bigger than China? Are we special in a way to make us not feel the effects of such reckless lending? I agree. But this is not reckless lending. It is smart lending from a purely business perspective. Not condoning it, but who would refuse to lend at 90% per annum, with a portfolio of, say KES10Mill comprising multiple smaller loans of around KES 1k. Even with a 50% default rate, you are still in the money. So the lending is not reckless, but obviously far from ethical. Its not an ethical issue for me. Its reckless especially if banks are the ones doing the lending. We have seen that in China, online lenders have folded due to massive defaults. I dont mind a fintech putting its money on the line via mobile lending. I am opposed to banks putting depositors money on the line. That is my money and your money. Who is checking to see that they dont put too much money in this asset segment. If a bank has say 50% of loans on mobile, what will happen to that bank in case of massive default. What will be the domino effect on the financial system. We now have banks in trouble like hfck going online and mobile. Next they will be giving mobile loans. Hungry execs looking for outsize bonus will dish out more money on mobile coz its easy money. When the defaults come, not if but when, it will be ugly. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 3/8/2018 Posts: 507 Location: Nairobi
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tom_boy wrote:jmbada wrote:tom_boy wrote:We need this mobile lending to be regulated. China realised this fact in 2017. Are we bigger than China? Are we special in a way to make us not feel the effects of such reckless lending? I agree. But this is not reckless lending. It is smart lending from a purely business perspective. Not condoning it, but who would refuse to lend at 90% per annum, with a portfolio of, say KES10Mill comprising multiple smaller loans of around KES 1k. Even with a 50% default rate, you are still in the money. So the lending is not reckless, but obviously far from ethical. Its not an ethical issue for me. Its reckless especially if banks are the ones doing the lending. We have seen that in China, online lenders have folded due to massive defaults. I dont mind a fintech putting its money on the line via mobile lending. I am opposed to banks putting depositors money on the line. That is my money and your money. Who is checking to see that they dont put too much money in this asset segment. If a bank has say 50% of loans on mobile, what will happen to that bank in case of massive default. What will be the domino effect on the financial system. We now have banks in trouble like hfck going online and mobile. Next they will be giving mobile loans. Hungry execs looking for outsize bonus will dish out more money on mobile coz its easy money. When the defaults come, not if but when, it will be ugly. it's not reckless. These are small amounts per person. Spreading out to minimise risk while increasing profitability. Take KSh. 1000000 for instance. Lending 1000 to 1000 people is far less risky than giving the entire 1000000 to 1 person. Even Okoa Jahazi is technically a loan. People pay it back religiously without feeling the pinch. Fuliza is following a similar path. Say you have an overdraft of 5k using Fuliza. Will you close down your line (which is linked to your social and business life, chamas, saccos and even the church register) and buy another one just to avoid the burden, and start all over again with a low loan limit? Meanwhile you find another lender and vow never to use MPESA again? Safaricom is making leaps because of offering convenient solutions to problems Wanjiku has. Banks have simply not been innovative in developing means of assessing an individual's credit profile, and relying on the traditional modes of lending.
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Rank: Elder Joined: 12/7/2012 Posts: 11,935
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By the way why are we referring to mobile loans to be ponzi, i missed that memo  In the business world, everyone is paid in two coins - cash and experience. Take the experience first; the cash will come later - H Geneen
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Rank: Veteran Joined: 7/3/2007 Posts: 1,635
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Angelica _ann wrote:By the way why are we referring to mobile loans to be ponzi, i missed that memo They are not ponzi. Simply good business- high risk but low impact. And unless we are willing to include the, equally pricey, MFI loans, we have no business demonizing mobile loans. "The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth." (Niels Bohr)
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Rank: Elder Joined: 7/22/2009 Posts: 7,843
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Angelica _ann wrote:By the way why are we referring to mobile loans to be ponzi, i missed that memo It is the unfortunate act of one liberally using words that they don't know the meaning! And that is where one starts losing the plot!!! Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Member Joined: 1/1/2011 Posts: 396
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tom_boy wrote:jmbada wrote:tom_boy wrote:We need this mobile lending to be regulated. China realised this fact in 2017. Are we bigger than China? Are we special in a way to make us not feel the effects of such reckless lending? I agree. But this is not reckless lending. It is smart lending from a purely business perspective. Not condoning it, but who would refuse to lend at 90% per annum, with a portfolio of, say KES10Mill comprising multiple smaller loans of around KES 1k. Even with a 50% default rate, you are still in the money. So the lending is not reckless, but obviously far from ethical. Its not an ethical issue for me. Its reckless especially if banks are the ones doing the lending. We have seen that in China, online lenders have folded due to massive defaults. I dont mind a fintech putting its money on the line via mobile lending. I am opposed to banks putting depositors money on the line. That is my money and your money. Who is checking to see that they dont put too much money in this asset segment. If a bank has say 50% of loans on mobile, what will happen to that bank in case of massive default. What will be the domino effect on the financial system. We now have banks in trouble like hfck going online and mobile. Next they will be giving mobile loans. Hungry execs looking for outsize bonus will dish out more money on mobile coz its easy money. When the defaults come, not if but when, it will be ugly. The CBK is the regulator for Banks in Kenya. Banks' lending portfolios form part of regular reporting requirements. I believe that Banks are only lending to their OWN existing clients as they need to meet KYC requirements. If hungry execs wanted to dish out loans for "easy" money, they would simply lend larger amounts without checking credit status or investing in digitisation. The real isssue here is not that Banks are finding new ways to advance loans while distributing risk, it is whether or not the lending is being used to advance loans that are designed to attract penalties, effectively circumventing the interest rates cap. I.e. the one day loan is at 13% per annum but penalties if you don't pay by midnight are another 13%. This is not an actual default as you pay the next day. However, the penalty may yield another 13% annualized charge.
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