Paper short abstract:

This paper will use a capability approach and economic theories of regulation to explore how Kenyan digital credit products affect borrower agencies. Kenya is famous for its progress in digital development, yet the impact of regulation on borrowers' agencies remains underresearched.

Paper long abstract:

Using a comparative case study of two digital credit products: Fuliza and Tala, this paper will explore how borrower agency in Kenya's growing digital lending space is constrained or expanded by regulatory decisions. This analysis will operationalise a capability approach, and economic theories of regulation, and build on themes from the 2007 financial crisis and the financial inclusion revolution in Africa, particularly Kenya. The paper aims to show that access to resources like digital credit is necessary but insufficient for increasing borrower agency, and digital financial inclusion may further exclude borrowers by putting them in debt. Second, consumer protection laws are essential to protect borrowers' agency and should be used to prevent predatory lending at high-interest rates to low-income borrowers who cannot sustain that credit. Third, lenders may affect borrower agencies differently based on the extent of regulatory capture and consumer protection involved in the regulatory process. Regulation should thus be uniformly enforced on all lenders to prevent differing outcomes between larger and smaller lenders. Additionally, regulators should address data and infrastructural monopolies that give some lenders more control over borrowers' agency than others. Overall, this analysis is crucial as the current Kenyan government rolls out a digital credit product aimed at increasing entrepreneurship among youth, without addressing the growing debt crisis that digital credit could cause among borrowers unable to repay.