Parliament’s Finance Committee approves law seeking to regulate digital lenders

CBK granted powers to regulate digital lenders in Kenya

The National Assembly Finance and Planning Committee has approved the Central Bank of Kenya (Amendment) Bill 2021 that seeks to regulate digital lenders in the country.

The Committee also granted the regulator powers to price interest rates for digital loans.

”The Bill, therefore, seeks to give Central Bank of Kenya powers to regulate the digital lenders who are not regulated in other law e.g the Capital Markets Authority Act, the Banking Act and the Insurance Act. The CBK Act mandates the Bank to maintain a stable and sound market-based financial system,” reads the report.

CBK will also control products that are put out by the digital lenders and also data from the borrower.

Digital Lenders Association of Kenya (DLAK) Chairman Kevin Mutiso appearing before the Committee on July 12 argued that “Digital Lending Industry is a not a deposit-taking institution and the prudential requirements were not necessary.”

MPs agreed to the terms and shut down a plan to grant CBK mandate to set capital adequacy requirements for digital lenders.

The Central Bank will also have up to 30 days upon receipt of application documentation to either issue a license to a fintech or notify them of the decline in approval.

DLAK has welcomed the looming regulation of the sector, saying it will help lower the cost of credit and deal with rogue lenders.

“Regulation is a sign of maturity of a market. It means we now have understood what are the limits of our products.” Said Ivan Mbowa, Managing Director, Tala.

CBK currently regulates banks and micro-lenders but the proposed changes will now grant it supervisory and licensing powers to oversee hundreds of digital lenders operating in the country.

Also Read:

  1. CBK Governor Dr. Njoroge warns regulating digital lenders not enough
  2. Digital lenders reject proposed regulation of digital loan costs
  3. Mobile lenders ready for CBK regulations

These lenders have invested in Kenya’s credit market in response to the growth in demand for quick loans by Kenyans.

Their proliferation has saddled borrowers with high interest rates, which rise up to 520 percent when annualized.

This has led to mounting defaults and an ever ballooning number of defaulters who have been adversely listed with Credit Reference Bureaus (CRBs).

Market leader M-Shwari, Kenya’s first mobile-based savings and loans product introduced by Safaricom and Commercial Bank of Africa, charges a “facilitation fee” of 7.5 percent on credit regardless of its duration, pushing its annualised loan rate to 395 percent.

Tala and Branch, other top players in the mobile digital lending market, offer annualised interest rates of 152.4 percent and 132 percent respectively.

The push to control the activities of digital lenders comes more than a year after Kenya removed the legal cap on commercial lending rates.

CBK Governor Patrick Njoroge when he met with the Committee on July 13 said usage of unregulated digital had grown from 0.6 percent of Kenya’s adult population in year 2016 to 8.3 percent in 2019.

According to Dr. Njoroge, regulating the sector is a step in the right direction which will see CBK regulate and supervise the conduct of digital lenders.

If enacted, it will take effect immediately and digital lenders will have a maximum of six months to register or be considered as illegal entities.

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