CBK to discontinue mobile lenders yet to comply with regulatory framework

The deadline is looming for Digital Credit Providers (DCPs) or better known – mobile lenders, who are yet to comply with the Central Bank of Kenya (CBK) regulatory framework.

According to the regulations, the lenders have until this Saturday, September 17, 2022 to comply failure to which they will be forced to exit the Kenyan market.

The country plays home to over a hundred lending apps, which are popular for their unsecured and instant loans disbursed through mobile phones.

New Regulations under CBK (Amendment) Act, which came into force on March 18, 2022 provide for the licensing, governance and credit operations of mobile lenders.

They make provision for consumer protection, credit information sharing, data privacy and Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).

Similar to other CBK regulated financial institutions, new mobile lenders seeking a licence are first required to submit their proposed names to the CBK for approval before proceeding to incorporate a company with the Registrar of Companies.

Upon submission of a digital credit licence application with the regulator, it may grant or reject the application within sixty (60) days from the date of receipt of the application.

The regulations also require DCP to provide information on their source of funds beginning September 17.

“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,” the regulations read in part.

According to the CBK, source of funds disclosure is meant to ensure that lenders are not engaging in financial crimes like money laundering.

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. 

To get a licence, a digital credit provider is required to complete an online licence  application form. The application is submitted together with a myriad of supporting documents including system and channel descriptions, credit terms and conditions and specified policies and documents for review, testing and final approval by the CBK.

Once a digital credit provider procures its licence, it must be careful to comply with the regulatory obligations and conditions prescribed by the CBK and the other regulators.

Failure to do so could cause the licence to be suspended or revoked. Suspension or revocation of a licence could also occur where an applicant falsifies its licence application information, carries out activities outside the scope of licensed activities, fails to pay annual fees or monetary penalties  or conducts business in a manner detrimental to the interests of its customers or members of the public.

Failure to comply could also lead to imprisonment, fines and/or penalties upon conviction. The CBK is keen to see an end to cases where these mobile lenders have been using unscrupulous means to get money back from borrowers including use of 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.

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