Beginning September 17, 2022, it will be illegal for mobile lenders, legally identified as Digital Credit Providers (DCP) to make direct contact or send endless messages should a borrower run into default.
It is in line with new draft regulations that were published by the Central Bank of Kenya (CBK) on December 23, 2021 when it began to regulate mobile lenders, a motion which undertook a year at the National Assembly.
The transition period for all operating unregulated mobile lenders to apply for licences ended on the September 17, 2022, effectively locking out those who did not submit their application.
There are 566 mobile lenders in Kenya but the CBK received 288 applications out of which, only 10 have been licensed.
These ten include Sokohela Ltd, Sevi Innovation Ltd, Rewot Ciro Ltd, MyWagepay Ltd, Mwanzo Credit Ltd, Kweli Smart Solutions Ltd, Jijenge Credit Ltd, Giando Africa Ltd ,Getcash Capital Ltd and Ceres Tech Ltd).
The September 17 deadline automatically locked out a staggering 278 players who will cease operating in the country. Big players in the industry such as Zenka and Tala were unfashionably missing from the list issued by CBK but will fall in play in due course.
The CBK Regulations 2020 was fashioned to bring social ethics around debt collection and recoveries from defaulted borrowers. This was triggered by the public outcry about the predatory practices of the unregulated DCPs, high-interest rates charged, unethical debt collection practices and blatant abuse of personal information
Some of the requirements for licencing of the DCPs by CBK included having a working mobile platform, a comprehensive description of the products and services to be offered, Customer Relationship Management, compliance with (AML/CFT and Data protection policies and procedures among other pre-conditions for licencing
Previously, DCps were required to notify borrowers in writing of their intention to submit the customers information to a licenced credit reference bureau(CRB) either 30 days before submitting the negative information or within a shorter period as the contract between the DCP and the borrower.
However, this period was not specific, the shorter pre-listing period was set at 7 days minimum. The previous wording of this clause was ambiguous and subjective and DCP regulation 2022 brings clarity, order and uniformity with regards to the pre-listing notice.
Other salient changes and Licencing formalities include The Duplum Rule. Amendment No.9 of 2006 of the banking Act introduced the Duplum rule into Kenyan legislation to protect borrowers and all consumers of credit in all credit agreements from interest rates exploitation and to bring financial health in all sectors.
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.
The CBK has previously fingered the digital lenders for serving pain to Kenyans by disbursing quick but expensive loans with atrocious debt collection terms and practices attached.
Kenya has been championing for a healthy financial inclusion even as majority of borrowers in the country resolve to quick loans from digital lenders to fund their day-to-day business activities.
According to CBK, 2 million Kenyans are using the digital channel to access credit every day, a tenfold jump from 2016 when the figure stood at 200, 2000.
The debate to regulate mobile lenders was foreseen by former Homabay Member of Parliament Gladys Wanga, the region’s current Governor – but was first proposed by the late Bonchari MP John Oroo Oyoka.