Kenya’s roadmap towards regulating digital credit service providers is almost coming to life with the Central Bank of Kenya (CBK) (amendment) bill 2021 currently in the public participation stage.
According to the CBK, between 2016 and 2019 the usage of unregulated digital credit grew from 0.6 percent to 8.3 percent.
The fast-rising sub-sector has however witnessed controversies with allegations of money laundering, high interest rates, invasion of privacy, cyber security and consumer harassment.
CBK told Parliament that roughly 200,000 Kenyans were borrowing money on their mobile phones in 2016 but the number had gone up to two million in 2019.
The CBK also admitted that it does not know the number of operators which keeps changing.
The regulator played down the value of loans taken from unregulated players which stands at Ksh. 4 billion which is a tiny fraction, that is, less than one per cent of the entire banking system.
“There is growing uptake of unregulated digital credit but the number and size of the unregulated digital credit providers is uncertain,” CBK Governor Dr. Patrick Njoroge told Parliament Finance Committee.
Through the amendment bill, CBK will provide licenses to the digital lenders, determine their capital adequacy and minimum liquidity requirements, approve digital channels and business models as well as suspend the licenses.
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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.
“This could be by design but will be a problem as the broad objectives are the same. CBK provided comments earlier but they have not been incorporated. At the end of the day only one will go, the 2021 Bill is much further ahead,” said Dr. Njoroge.
The regulator estimates there are more than 100 unregulated digital lenders that lack transparency in pricing and aggressive debt collection.
They don’t respect privacy and abuse personal data, misuse of Credit Reference Bureaus (CRB) information and financial integrity is also an issue.
“You don’t know whether money is being laundered. Borrowers need to feel protected no matter who is lending. There is an issue of financial distress because of the pressures brought to them because of borrowing. The misuse of CRB information will be there until the sector is well regulated,” he added.
CBK said it has started to collect data on digital lenders as 3rd party processors to the CRB. It has engaged with Fintechs in various ways and want to be clear that they do not want to inhibit innovation but it has to be in the right manner.
