Imagine losing your job because your company’s customers were on their best behaviour?
Well, we mean, isn’t that what you’re hoping for if you work for a company that is frequently in the loan recovery business? It’s a weird position to be in—rooting for success, only to be let go because things went too well.
That was the fate of 28 Tala employees who were let go this month.
In digital lending, keeping a low loan default rate is how you stay capital-efficient. Repayments replenish the pool to lend again, and that’s the engine for revenue.
At least Tala, the Kenyan micro-lending startup, says it will fulfill all its contract obligations to these ex-staff members post-employment. They will get their final pay and one-month severance payment, plus paid unused leave days.
Still, there’s one suspicious thing: Tala didn’t disclose its current loan default rate, even as it touted repayment efficiency, making us curious about its methods in a digital lending space where high loan defaults are a feature. In Kenya, defaults on digital loans hit 40% in December 2024 and banks don’t have it easy either.
What is Tala doing right? Kenya’s credit scoring system is not very advanced, so Tala sticks with verifying your SMS, bank transactions, and social patterns, before making lending decisions. It asks for these details before it processes loan requests, making it easier for its system to reject even a new user beforehand.
This helps Tala avoid risk compared to most legacy and digital lenders that typically onboard new users with loan offers. However, in cases of prolonged defaults, Tala uses debt collection agents, showing it is not afraid to use force; you can argue ethics later.
In Kenya, a bigger micro-lender, M-Shwari, charges 9% interest rate. Competing microfinance institutions (MFIs) charge over 20%, leaving Tala with a small window of opportunity with its initial low-cost loans which start at 4%.
Its loyalty programmes also help to keep users coming back. In a space with expensive switching costs for customers, it is important to give price-sensitive Kenyans more reasons to stay out with one lender.
Yet, the big question: can Tala sustain the momentum?
