Toxic relationship between financiers, boda boda sector

Erick Massawe, Watu Credit Country Manager, recalls an incident where a boda boda rider hid his bike under the bed, well-covered with a blanket, and reported it stolen.

There was another incident where a rider buried his bike and also reported it stolen. The rider had even rehearsed a story with his mother, who visited Watu Credit offices while weeping, Massawe says.

“The motivation for such cases is that some customers want to take advantage of our systems designed to help them. All our mobility assets have comprehensive insurance. Once we establish a theft case is genuine, we will go and claim,” he says.

These incidents of bike disappearance prompted Watu Credit and other entities with the same business model, like Mogo, JoyInc Group, My Boda, and 15 Minutes, to appear before a Parliamentary Committee to explain the design of their product offering, described as Buy Now Pay Later (BNPL).

BNPL is largely an unregulated financial product as institutions that offer this service are not necessarily banks, Saccos, microfinance, or digital lenders. This product is attractive to many low and lower-middle-income individuals whose cash flow is not appealing to mainstream financial institutions.

This is the sweet spot where BNPL firms have thrived, as has the relationship between them and the bodaboda industry, which has now turned sour.

Somehow, the bed of roses for unregulated BNPL products and the mildly regulated bodaboda sector has become too thorny to bear, prompting Parliament to step in.

Yet, this issue is not unique to Kenya.

The United Kingdom Parliament in February raised a similar concern with BNPL products, calling for regulation. A Hansard report from the House of Commons noted that UK citizens are turning to BNPL products due to cost-of-living pressures to buy essential items. The report indicates that while used responsibly, BNPL can help consumers manage their finances and make purchases, but it has also resulted in unimaginable debt.

“The petitioners may be interested to know that while BNPL is unregulated, BNPL users already benefit from broader consumer protection legislation, including on advertising and unfair contract terms,” the report says. “The Financial Conduct Authority (FCA) also has existing powers to take action against firms, which it used as recently as October to secure changes to firms’ potentially unfair and unclear contract terms.”

BNPL product providers in Kenya hold a similar view, stating that while they are not under the ambit of the Central Bank of Kenya (CBK) or Sacco Societies Regulatory Authority (SASRA), they subscribe to other laws that govern their operations, such as financial reporting standards, data protection, and the Competition Act.

“Regulation starts with yourself. If you do not have solid governance, processes, policies, and procedures in your company, then no matter how much you are regulated from the outside, you will not be operating in a proper manner,” said Irshad Muttur, Chief Operating Officer of Aspira, a firm that also provides BNPL services, during a past interview with The Standard.

In its submissions to the National Assembly Departmental Committee on Finance and Economic Planning, chaired by Molo Member of Parliament Kimani Kuria, Watu Credit noted this gap, explaining that its business model does not fall under the Banking Act, Microfinance Act, or the Sacco Societies Act. It also does not fall under the CBK Act, which regulates digital lenders.

“While we note that there are laws and regulations on the provision of credit facilities and offering of goods under the Buy Now Pay Later scheme, we are of the view that Watu does not fall within these regulations since it does not strictly fall within the provisions of such regulations,” reads the firm’s response to queries asked by the Committee.

The firm explains that the closest it comes to being regulated is the Microfinance Act. Yet, while Watu’s business model fits the description of a non-deposit-taking microfinance institution, the Act does not prescribe regulations governing microfinance bank businesses.

“It would thus suffice that Watu is not specifically regulated under any specific Act or regulations but adheres to general statutes such as the Consumer Protection Act, the Data Protection Act, the Employment Act, and common law principles applicable in Kenya,” the firm says.

Combining this gap in the law with the unregulated and often chaotic bodaboda sector, accusations are bound to emerge from each side.

Despite the existence of a law demanding that Public Service Vehicles, where bodabodas fall, be organized in Saccos, which is a leverage for BNPL firms to sell their products, the sector is still largely unregulated.

The Public Transport (Motorcycle) Bill 2023, sponsored by Kakamega County Senator Boni Khalwale, proposes that every county have a County Motorcycle Transport and Safety Board. The Bill proposes penalties for offenses that the Traffic Act seems to have overlooked to bring sanity to the sector.

Among these is the requirement for an employment letter if the rider is not the owner of the motorcycle and the prohibition of a rider from carrying loads whose width projects more than 15 centimeters beyond the outside of the handlebars.

“The rider of a motorcycle carrying loads shall ensure that no part of the load carried drags on the road. For the purpose of this Act, the term ‘load’ excludes luggage carried by a passenger provided such luggage does not exceed ten kilograms in weight and does not project more than fifteen centimeters beyond the outside end of the handlebar,” reads the Bill in part.