Africa: Google’s personal loans policy could hurt financial inclusion gains in Nigeria and Kenya

Last week, Google made updates to its personal loans policy. As part of the changes, personal loan apps will not be able to access users’ contacts and photos after Wednesday, May 31, 2023. This is in addition to changes it enforced this year that required loan providers in Nigeria and Kenya to provide proof of regulatory compliance.

Google’s move to protect users on the Play Store comes on the backdrop of increasing reports of predatory lending practices in Nigeria and Kenya, two countries that have witnessed significant adoption of digital lending services. With regulated commercial banks reluctant to lend to individuals, lending apps, some of which are unregulated, have filled in the gap but there has been an unintended consequence.

Unregulated lending apps, capitalising on the desperation of consumers, give out loans at ridiculously high interest rates. When these users are unable to repay the loans, they are often harassed by loan officers from these companies. In 2021, the National Information Technology Development Agency (NITDA) fined Sokoloan ₦‎10 million for data privacy invasion.

The same year, Kenyan lawmakers added a clause that empowered the Central Bank of Kenya to revoke the licences of digital lenders that breached customer confidentiality. While Google’s policy protects customers, it also affects the operations of all lending startups, while it could potentially limit the gains of financial inclusion.

Babatunde Akin-Moses, founder and CEO of Sycamore explains that lending startups typically request customers to upload know-your-customer (KYC) documents and without access to photos, startups may need to find alternative and equally effective KYC methods. The difficulty in doing this, he says, may affect the ability of customers to access loans.

“It will make it more difficult for lenders to carry out KYC because customers are familiar with uploading photos when asked for KYC documents. Lenders who cannot find alternative but equally efficient methods of getting KYC may potentially see a reduction in their customer acquisition rate. On the loan recipient side, this might mean that fewer people will be able to access loans on Android phones except such customers are quickly able to adapt with whatever alternative methods the lenders design.”

In Nigeria, 78.75% of Nigerians use smartphones that run on the Android operating system. That number is higher in Kenya at 89.88%.

However, beyond affecting the operations of fintech startups, Google’s increasing role as a de facto regulator poses challenges for African startups. Reacting to the development, Ngozi Dozie, founder and CEO of digital lending pioneer, Carbon points out that startups depending on Google’s Play Store could be adversely affected when policies do not go their way.

“Google is going to make decisions that optimise for its largest markets thus the attention of the vast majority of its staff and consequently policies will be on these markets. Startups in non-core emerging markets have a heightened risk of over-dependence on this channel, especially when policies may be detrimental to their growth.”

Akin-Moses echoes the same thoughts when he says, “As much as Google has helped with the development of services in Africa generally, there are certainly drawbacks in their increased dominance on the African landscape.

“A major draw is that as a private company (owned by Alphabet), it will most likely act in the best interest of its business and key stakeholders before other considerations. How much of that “interest” aligns in favour with the African digital lending space is anybody’s guess.”

While Google’s policy could negatively affect both startups and the individuals they hope to protect, its concerns regarding predatory lending are valid. However, there are more effective ways of ensuring borrowers are protected. For example, its policy requiring lenders to show proof of regulatory compliance means only startups approved by the regulator in these countries can be on the Play Store and is a step in the right direction. It can also work with regulators to create guidelines for lenders that are yet to get a licence. That way, all honest lenders can continue to provide their services pending the receipt of a licence.