Several mobile lending apps operating in Uganda are employing illegal methods such as accessing call detail records of customers during the loan recovery, a report reveals.
According to the report, such unregulated online lending and borrowing could be a conduit through which criminals are laundering dirty money across cyberspace in Uganda.
StratEdge Consulting conducted the study in collaboration with UK-based and US-based financial crime investigation agencies and the full report will be published before the end of the week.
Unlike banks and other financial institutions that ask for collateral to acquire a loan, the instant loan app requires the applicant to have a national identity card and two guarantors.
The report states that the Apps allow for the inclusion of next of kin/emergency contacts by borrowers without the knowledge and consent of the included parties, who are later harassed and tormented by the unprofessional loan recovery agents of the lenders.
The apps are also accused of duplication.
“15 of the 16 Apps that we investigated were belonging to at least one of 5 entities, with each entity operating at least three Apps under different names contrary to the UMRA guidelines,” the report adds.
The apps are also accused of charging exorbitant interest rates ranging from 28% to 37%.
Like several other similar outfits, most apps run websites but with no known physical address as is required by law. Online lenders generally source clients either through sending out unsolicited bulk text messages with tempting offers of quick-fix unsecured loans or unregulated social media advertising, or by word of mouth.
Money is wired directly to an applicant’s mobile money account. No face-to-face contact ever occurs.
Loans between Shs30,000 and Shs150,000 must be paid within eight days, and anything between Shs160,000 and Shs290,000 in 21 days, while Shs300,000 and more are given 30 days.
There is also use of unregistered mobile phone numbers during the recovery process, which could be aided by unscrupulous individuals within the security services.
Egesa Ronald Leonard, a software engineer and CEO of Magezi Harvest Limited, who shared part of the report, said the lending apps also forged documents such as demand letters from prominent law firms and court orders during loan recovery.
“The entire business model is driven by greed and foolishness. They threaten the borrower that they will reach out to their contacts and inconvenience them in case the borrower defaults. This would imply that the borrower is using his reputation as collateral when borrowing.
Upon default, the fellows liquidate the collateral by calling the borrowers’ contacts and ‘shaming’ the borrower, going to the extent of creating WhatsApp groups for fundraising. Even after liquidating the collateral, they still continue pleading and looking for the borrower – now defaulter and pleading for them to pay,” he said.
“If the local players in the FinTech Ecosystem will not step up and organise this sector by ensuring only professional entities can access and use the Mobile Payment aggregation services, International players might need to come in,” he added.
When contacted, the Uganda Microfinance Regulatory Authority (UMRA) acknowledged that it is aware of the proliferation of illegal online money lending.
The authority’s executive director, Ms Edith Tusubira, noted that, as a result, they are “very soon” unveiling fresh measures to counter future risks envisaged in the innovation of online lending.
The Financial Intelligence Authorities (FIA) also indicated that inquiries are underway into the matter. Some of the implicated online lending apps are Mangu cash, Fair credit, Quick sente, I-sente, Chipa cash
Other watchdog agencies in Uganda’s financial sector had earlier raised fears about unregulated online lending and borrowing.
According to the Data Protection and Privacy Act, 2019, Section 10, a data collector, data process, or data controller shall not collect, process, or hold personal data in a manner that infringes on the privacy of a data subject.
Section 13 (1) of the same act also indicates that any person collecting data must inform the data subject about the nature and category of data being collected, the name and address of the person responsible for the collection of data, and the purpose for which the data is required and whether or not the supply of data by the data subject is discretionary or mandatory.
