NAIROBI, July 11 (Xinhua) -- When he borrowed some 5,000 shillings (50 U.S. dollars) six months ago from a digital lender to settle an urgent matter, Joseph Ndungi was confident that he would repay the loan on time.
He paid the bulk of it in the following weeks and forgot about the little balance, despite getting some reminders from the lender.
The jobless graduate still owes the digital lender 3 dollars and this amount has seen him blacklisted by a Credit Reference Bureau (CRB).
"I was shocked the other day when I learnt my name had been listed as a defaulter. This complicates matters for me because I may never take another loan or get some services," said Ndungi, 28, who believes the debt was little to warrant the action.
His pain is shared by thousands of other citizens who have been listed as defaulters for failing to repay micro digital loans.
Some 2.7 million Kenyans have been listed in CRB for failing to repay digital loans, with a majority of them having loans worth 2 dollars and below, according to the Central Bank of Kenya.
The listing comes with a huge price that include being denied loans by other lenders or any post-paid services like pay TV.
Once listed, one has to repay the loan in full plus the accrued interest and a penalty of 22 dollars to clear their names.
It is a pain that many citizens are realizing too late as digital lenders cash in on increased demand for their services.
There are at least 50 digital lenders in the east African nation, a majority of whom offer loans that range from 5 dollars to 100 dollars.
Up to 7 million Kenyans are hooked to digital loans as they are multiple and repeat borrowers, according to a recent joint survey by the central bank, Kenya National Bureau of Statistics and Financial Services Deepening-Kenya.
Interest rates on the loans start from 10 percent to 20 percent per loan taken, with frequent borrowers paying through the nose.
The stiff rates are among the reasons the government has blamed for the high number of people listed as defaulters.
Interior Cabinet Secretary Fred Matiang'i noted that majority of the Kenyan youth have ended up being listed as defaulters after borrowing cash to engage in sports betting.
Those who win their bets repay the loan taken but a majority lose the money, therefore default on payment leading to the blacklisting.
Bernard Mwaso of Edell IT Solution noted that digital loans have increased the number of those blacklisted as defaulters two-fold.
"Before the loans, there were about a million defaulters listed by the bureaus and these had taken money from banks, micro-finance institutions and cooperative societies and failed to repay. Before one was listed, it took some time with banks making a follow up but with digital loans, the number of loan taker has increased as much as the defaulters thanks to mobile phone convenience," he said, adding this is the downside of the technology.
On July 7, the central bank asked banks to ensure that they only list defaulters with CRB after six months of failing to repay a loan, but this directive does not apply to non-formal banking institutions like the digital lenders, some of whom blacklist loan takers after two or three months.