Alert on the sophistication of illegitimate debt techniques via mobile telephony

8 November 2019 by Eric Toussaint

Public relations exercise :“Keep the connections going”- Nairobi, Kenya (CC - Flickr - ITU Pictures)

In the era of widespread mobile telephony, we witnessed certain capitalist firms employing a sophistication of techniques to ensure the illegitimate debt of the lower classes.

Kenya, a country of 50 million people, is considered to be at the forefront of mobile telephony and digitalisation. Here, capitalist firms have developed telephone credits by providing different applications that enable mobile phone users to loan a sum, very quickly and easily.

The current phase of microfinance is characterized by the boom in “banking” services provided by companies that do not have a banking license (i.e. who are not authorised to practice banking) and who consequently, are not accountable to the banking sector regulatory authorities or to the central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.


Kenya’s authorities highlight the comparative advantages of the country’s economy by highlighting its technological advance over the rest of Africa, including the development of mobile money (understood as the currency that is carried by mobile phones) and other innovations from Nairobi’s Silicon Savannah. This Silicon Savannah draws reference from the Silicon Valley of the United States, the birthplace of Microsoft, Apple, etc.

Among adults, 40% have a bank account whereas 70% use mobile money. In neighbouring Tanzania, 18% of adults have a bank account and close to 20% use mobile money. In Kenya, there are at least 49 internet credit platforms.

Source : FSD Kenya, Tech-enabled lending in Africa, Kenya School of Monetary Studies. Page 49.

The largest among these is Safaricom [1], which controls two-thirds of the Kenyan mobile phone market, has launched a banking service via M-Shwari and M-PESA: it lends money and the money is deposited in a M-Shwari bank account. By mid-2018, Safaricom’s M-Shwari had granted loans amounting to 230 billion shillings (about € 2 billion or US$ 2.3 billion [2]).

Among the companies that offer mobile money are two companies based in California, Tala and Branch. They cater to US “investors” by promising them lucrative profits for the money invested with them. Tala has managed to raise US$ 109 million and Branch has raised US$ 260 million. See Boston Review, “Perpetual Debt in the Silicon Savannah

We should firmly keep in mind that these type of firm use leverage Leverage This is the ratio between funds borrowed for investment and the personal funds or equity that backs them up. A company may have borrowed much more than its capitalized value, in which case it is said to be ’highly leveraged’. The more highly a company is leveraged, the higher the risk associated with lending to the company; but higher also are the possible profits that it may realise as compared with its own value. effect which means that that the lending volume can be more than 30 times of the funds available with them. [3]

The propaganda articles for new forms of credit, commonly referred to as Financial Technology Industry (FinTech) states,“The rationale behind the use of mobile phones is simple as the Kenyan case shows: 30 million subscriptions; communication charges are among the lowest in the world; 73% of Kenyan adults use mobile money, and 23% use it at least once a day.”

We start dreaming after reading further passages from the article “Technology allows millions of low-income households to organize their private and professional lives as efficiently and flexibly as wealthier households.”

Mobile money leads to a new form of slavery or servitude.

The reality is totally different and this type of credit, far from freeing those who resort to it, leads to a new form of slavery or servitude. Lower classes borrow money via their mobile phones to cover basic necessities: repaying a loan to avoid payment default, buying food, paying school fees, paying for medical expenses, paying the mobile phone bill, public transport costs...

At this stage of the evolution of this type of indebtedness, there is insufficient data on the gender distribution of the clientele of mobile money firms. However, it is clear that women constitute a very important target for capitalist societies. To use their terms, this is a huge potential market that must be “conquered” and “penetrated”. According to a study carried out in this perspective, women have so far been mainly recipients of mobile money remittances made by men.

Here are the recommendations found in a study funded by US AID (the United States government agency for development cooperation), the Bill and Melinda Gates Foundation, and the Mastercard company: “To reach scale and impact in their operations, mobile money operators cannot ignore women, who make up half of the potential customer base. However, penetration of services within this group remains low and there are many barriers that keep women from adopting and using these services, such as low levels of literacy and mobile phone ownership. Operators can use a number of tactics to overcome these gender-specific barriers, particularly changing their approaches to marketing and distribution. This includes product offerings tailored to the unique financial needs of women; updated marketing campaigns that women can relate to; and hiring quality female agents who help to build women’s confidence and trust in mobile money services and turn them into loyal customers.

This study written in 2014 by Claire Pénicaud Schwarwatt and Elisa Minischetti bears a very suggestive title “Reaching half of the market: Women and mobile money

Another excerpt from the same study says, “Women represent half of the potential customer base in every market. Mobile money operators that do not take account of the gender split of their customer base could miss out on a huge segment of the market. The interviews with mobile money operators revealed that, in many markets, they are more likely to receive mobile money than send it, while senders tend to be primarily men. They are financially dependent on a key market segment because of their use of mobile money. Mobile money operators have moved to focus on the ’active’ side of the transaction (the senders), and less on the ’passive’ side of the transaction (the recipients), which are just as important to a successful network. Other groups of women are promising segments as well. Some operators are targeting female business owners or female students with a different value proposition.

We can see how capitalist firms can strengthen the oppression and exploitation of women of the lower classes through the development of these new forms of credit.

Numerous digital platforms offering loans charge high interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
and numerous fees. They conduct intense campaigns to win customers and induce them to open an account via their mobile phone. To convince customers, they do not clearly specify the terms of the contract. For example, Safaricom, which grants loans ranging from the equivalent of 100 shillings (or about US$ 1 or a little less than € 1) to much higher sums, immediately levies a 7.5% commission on the slightest short-term credit.

Numerous digital platforms offering credit do not clearly specify the terms of the contract.

In the event of a default, these firms have the means to harass indebted people to extract reimbursement and add heavy penalties. Since they have the telephone numbers of all their clients’ correspondents, some of them threaten to call people from their address book. And if, despite the threat, the client can’t still pay back, they take action by telephoning family members, their employer, and so on. This creates a terrible stress, it generates a sense of shame, it leads to family tragedies, the loss of employment and can lead to real disasters till suicide.

Let’s not forget that mobile companies not only have the address books of their customers, they have access to their communications (sms, oral communications, e-mails, ...) and they can know where their customers are and what trips they perform. They can also know the financial status of their customer using online bank accounts. We know that data protection is very weak or non-existent in certain circumstances.

A very high number of Kenyans, 2.7 millions, already appeared on the list of bad payers for this type of mobile financial services, in 2017.vii This is proof of the magnitude of the repayment difficulties that a large number of customers are facing. Another figure concurs with it: 400,000 bad payers are blacklisted because they defaulted on a loan of less than € 2. [4]

Obviously, the companies that have started mobile money rely on their clients’ permanent indebtedness: they look forward to hook clients permanently to their services so that they are able to continue receiving reimbursements. Clients go into debt to repay debt and to overcome a chronic lack of cash to cope with everyday expenses or accidents.

Safaricom opened at the beginning of 2019 a new application called Fuliza. Safaricom Fuliza is aimed at Safaricom customers who have defaulted payments. It offers them small short-term loans with a risk premium Risk premium When loans are granted, the creditors take account of the economic situation of the debtor country in fixing the interest rate. If there seems to be a risk that the debtor country may not be able to honour its repayments then that will lead to an increase in the rates it will be charged. Thus the creditors receive more interest, which is supposed to compensate for the risk taken in granting the loan. This means that the cost to the borrower country is much higher, accentuating the financial pressure it has to bear. For example, in 2002, Argentina was faced with risk premiums of more than 4,000 points, meaning that for a hypothetical market interest rate of 5%, Argentina would have to borrow at a rate of 45%. This cuts it off de facto from access to credit, forcing it even deeper into crisis. For Brazil in August 2002, the risk premium was at 2,500 points. to repay the M-Shwari and M-PESA loans. Safaricom Fuliza during its first month of business lent 6 billion shillings (about € 52 million). - See Boston Review “Perpetual Debt in the Silicon Savannah”.

We can also mention Okoa Jahazi that provide credits directly related to Safaricom for the use of mobile telephony. Okoa Jahazi - Safaricom caters to the poorest of customers by offering them a phone credit which can be as limited as 10 shillings (i.e. € 0.1 or US$ 0.1).

It is clear that Kenya and, to a slighter extent, Tanzania are fields of experimentation and sophistication of unfair debt techniques generating illegitimate and often illegal private debts. Other markets targeted are: Nigeria with a population of 200 million, India with a population of more than 1300 million and Mexico (130 million). California-based Branch International [5], about we spoke above, has more than 3 million customers in Kenya, Nigeria, Tanzania, India and Mexico. This company “(...) uses smartphone data including GPS data, call logs, contact lists, and texts such as bank balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. messages and bill payment receipts to determine credit worthiness. In Africa, it makes loans ranging from $2 to $700 for up to 68 weeks, charging interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates of up to 21% in Nigeria and Tanzania and up to 14% in Kenya.” [6]

Source : Yomi Kazeem, « A $170 million funding round is the latest big-ticket fintech deal in Africa », Quartz Africa, 8 avril 2019.

Branch has signed agreements with Visa to extend its business to the merchant establishments that accept Visa cards as payment.

The capitalists who specialize in this “banking” sector to the poor manage to make huge profits, the governments complicit like that of Kenya tolerating them and benefiting from it (since it is a shareholder of Safaricom alongside Vodafone - see note 1) also make a profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. .

We must denounce the dominant discourse on the financial inclusion of the working classes. Financial inclusion as it really unfolds puts more and more people at the mercy of capital, competition and the market. Financial inclusion as promoted by institutions such as the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, major banking firms and foundations such as Bill Gates or Ford, aims to destroy what remains of collective solidarity mechanisms such as these structures through which women pool their meagre resources without borrowing from financial institutions. These structures exist in different forms in much of Africa and in other continents. By commodifying access to credit, by putting an increasing number of people at the mercy of private lenders, financial inclusion means more suffering, less freedom, less protection of personal data, more misery and more individualism.

Of course, one must not lose sight of the structural reasons which forces people to be indebted in order to procure basic necessary items of life. The foundation is the offensive of capital, called neo-liberalism, which includes cutting wages, making jobs more precarious, drastically reducing the quantity and quality of public services, increasing costs of health care, education, transport, increase of indirect taxes hitting those from below the hardest.

If we want to deal with the new forms of illegitimate debts, we must not only prohibit abusive practices but must also apply radical policies in order to increase working class incomes, improve and increase public services, ensuring that they are free. We must also reinforce all forms of concrete measures necessary to ensure the emancipation of women and end the mechanisms of capitalist patriarchal oppression.

It is also necessary to take the financial sector out of the hands of capitalists and turn it into a real public service under citizens’ control. It is thus a question of socializing the banking sector (see Patrick Saurin and Eric Toussaint, How to socialize the banking sector

Mobile money technology could really serve the population if it was a monopoly of public service. This is what Ecuador had attempted in 2010-2011 [7]. This experience should be resumed and improved. This is what the Confederation of Indigenous Nationalities of Ecuador (CONAIE) demands in its memorandum submitted to the government on October 31, 2019. [8]


[1The two major shareholders of Safaricom are the Kenyan state which controls 35% and Vodaphone, the Kenyan subsidiary of the British firm Vodaphone, which controls 40%.

[2As on 3 November 2019, 100 shillings = 0.9 € or 1 US$.

[3The leveraging effect allows a financial company to borrow, in one form or the other, more than 30 times its own capital.

[6Caution! if we annualize the rates in question, we arrive at much higher figures

[7BANCO CENTRAL DEL ECUADOR, Regulación No. 017-2011 sobre el dinero electronico

[8See the bottom of page 11 and the top of page 12 of CONAIE, Entrega de propuesta alternativa al modelo económico y social - publié le 31 October 2019

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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