How 12-month CRB freeze will affect households depending on quick loans from mobile lenders

CBK granted powers to regulate digital lenders in Kenya

Digital lenders have stopped giving loans to customers who are not in their database over continued freeze out of the Credit Reference Bureaus (CRB).

The move follows the current regulations that prevent the digital lenders from blacklisting defaulters, something the online lenders say will hinder collection of their loans, leading to huge losses.

According to the regulations, the online lenders can only access borrowers credit information from CRB with the consent of the borrower and Central Bank of Kenya (CBK).

Digital Lenders Association of Kenya (DLAK) chairman Kevin Mutiso they will now only give loans to the current three million active borrowers on their own databases, a move that is likely to deny many borrowers the short-term loans.

“We will just set new rules and say no to new customers because if we are not able to access the bureau, we can’t know the record of a new customer,” said Mutiso.

The lobby represents 25 digital lenders including Tala, Branch, Zenka, Okolea, and Stawika.

When the government moved in to cushion Kenyans from tough economic times casued by coronavirus last year, digital lenders where directed to only share defaulted accounts with CRBs for amounts not less than Ksh.1,000.

According to CBK, there are more than100 unregistered lenders operating in the country.

Unlike traditional banks which require a paperwork-intensive process and collateral to offer loans, digital lending apps dispense quick loans, often within minutes, and determine creditworthiness by scouring smartphone data including SMS, call logs, bank balance messages, and bill payment receipts.

The trend predictably gained traction among middle-class and lower-income earners who typically found access to credit through traditional banks out of reach.

The freezing of digital lenders from CRBs has since seen the online lenders cut their lending by half from about five million customers and loans disbursed to an average of Ksh1.8 billion a month from Ksh.4 billion.

On August 8 this year, the National Assembly Finance and Planning Committee 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.

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