Investor confidence up on digital sector after CBK takeover

CBK granted powers to regulate digital lenders in Kenya

Investors have exhumed confidence in the digital sector in Kenya following a recent move to regulate the sector.

According to the Digital Lenders Association of Kenya (DLAK) Chairman Kevin Mutiso, the sector has proved its credibility allowing investors to confidently put in money towards digital lenders in excess of Ksh.10 billion.

“We were waiting for a stable marketplace and the regulation was the key piece to ensure it. So I expect that those huge numbers coming in, not just to international founders but to local founders, even including people like us,” said Mutiso.

The Central Bank of Kenya Amendment Act 2021 was signed into law, by President Uhuru Kenyatta on December 7 last month, putting the sector under the watch of the Central Bank of Kenya (CBK).

The new law explicitly grants Central Bank the powers to determine pricing parameters. This will ensure that CBK does not necessarily set the lending rate but rather provide parameters within which digital credit providers shall set their cost of credit.

The digital lenders who are not regulated by CBK and are operating within the Kenyan marketplace have until June 2022 next year to comply with registration requirements.

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.

The regulations also bar the use of obscene language, improper debt collection tactics and other conduct whose consequence is to harass, oppress or abuse persons in connection with the collection of a debt.

Further, the CBK is set to limit interest recoverable from non-performing loans (NPLs).

The maximum amount of interest recoverable from a customer after default for instance must not surpass the principal owed when the loan becomes non-performing.

Moreover, the CBK will require digital lenders to provide clear disclosures of the terms and conditions of the loan to the borrower including charges and fees, the interest rate to be charged, the total cost of credit, the dates when all charges become payable and customer complaint handling procedures.

Digital lenders will nevertheless be allowed to list negative credit information pertaining to borrowers with Credit Reference Bureaus (CRBs) but must inform borrowers of the planned listing at least 30 days prior.

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Lawrence Baraza is a prolific writer with competencies in Digital Media, Print, and Broadcast. Baraza is also a Communication Practitioner currently spearheading Digital content on Metropol TV's Digital Desk.

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