Digital lenders to disclose funding source in move to fight money laundering

What you need to know about mobile lenders being regulated by CBK

Following the gazettement of the Central Bank of Kenya (CBK) Regulations, Digital lenders will now be obliged to provide information on their source of funds beginning September 18, 2022. 

“A digital credit provider shall provide to the Bank the evidence and sources of funds invested in the digital credit business and demonstrate that the funds are not proceeds of crime,” stated the regulations.

A report by CBK showed that borrowers who sought loans from the unregulated lenders grew from an estimated 200,000 in 2016 to more than 2 million in 2020. The digital lenders were previously only required to register the businesses to begin operations in the country. 

Digital lenders also did not have to reveal the source of their funds. Disclosing the source of funds, the CBK said, is meant to ensure that lenders are not engaging in financial crimes like money laundering.

CBK Governor Patrick Njoroge had warned that digital lenders provide money launderers platforms to clean dirty money in pretence of offering cheap and accessible loans to Kenyans.

Breaching of the anti-money laundering laws attracts a fine of up to Ksh. 25 million for financial institutions or jail term of up to 14 years or Ksh. 5 million fine for individuals involved.  

Previously, there had been cases of some digital lenders using unscrupulous means to get money back from borrowers. They were accused of using threatening language and getting in contact with the customer’s contacts.

“The regulations seek to address concerns raised by the public given the recent significant growth of digital lending particularly through mobile phones. These concerns relate to the predatory practices of the previously unregulated digital credit providers, and in particular, their high cost, unethical debt collection practices, and the abuse of personal information,” CBK stated.

On October 20 last year, Kenya unleashed new restrictive measures to regulate cash movement within her economy, aimed at combating money laundering activities.

President Uhuru Kenyatta in his Madaraka Dar Speach directed the National Treasury and related stakeholders to raise the threshold for the reporting of cash transactions of above Ksh.1 million units with the Financial Reporting Centre (FRC) effective November 1, 2021 even as financial institutions will retain their reporting obligations with the FRC.

Recording this kind of data with the FRC is in accordance with provisions of the Proceeds of Anti-Money Laundering Act (POCAMLA) which was effected in 2010.

Kenya is also seeking an amendment to the law that will see changes to how much a foreigner can invest in the country.

The current investment threshold by law requires a foreigner to have at least Ksh.10.92 million (US$.100,000) to obtain an investment certificate.

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