KENYA: CBK gives digital credit providers six months to apply for licences

Kenya’s Central Bank has issued a six months’ notice for digital credit providers (DCPs) to apply for licences or cease operations.

On his Twitter handle on Tuesday, Governor Patrick Njoroge said that regulations governing the operations of the DCPs will be gazetted later this month, paving the way for the licensing and oversight of the DCPs by Central Bank.

“All previously unregulated DCPs will be required to apply to CBK for a licence by September 2022 or cease operations,” said Dr Njoroge.

President Uhuru Kenyatta assented to the Central Bank of Kenya (Amendment) Act (2021), on December 7, 2021, providing CBK with the powers to license and oversight the previously unregulated digital credit providers.

The Amendment required Central Bank to publish Regulations within three months—by March 23, 2022—to govern the operations of DCPs.

The regulations—CBK (Digital Credit Providers) Regulations, 2021—bars digital lenders from threatening borrowers while recovering loans from them and prohibits the use of obscene language and improper debt collection tactics.

The amended Act also prohibits any person from engaging in the digital credit business without a licence and provides sanctions to offenders, including imprisonment for a term not exceeding three (3) years or a fine not exceeding Ksh5 million ($43,717) or both.

According to CBK the recent advances in technology and ongoing innovations has led to increased lending through digital channels, particularly mobile phones.

“However, concerns have been raised by the public about the predatory practices of the unregulated digital credit providers, and in particular, their high cost, unethical debt collection practices, and the abuse of personal information,” the regulator said.

According to the law firm Oraro & Company Advocates, the amendment of the law now brings digital lenders and borrowers under the regulatory ambit of the Central bank.

“The digital lending marketplace has been unregulated or rather self-regulating since its inception, which led to the emergence of unscrupulous digital lenders who sometimes employed unethical or illegal methods of debt collection such as debt shaming, predatory lending, charging exorbitant interest rates, illegal sharing of defaulters’ data, among others,” according to the law firm.

“The Act now empowers CBK to regulate all the digital credit providers to curb the foregoing.”

In 2020 Central Bank banned unregulated digital (mobile-based) and credit-only lenders from submitting credit information on their borrowers to Credit Reference Bureaus (CRBs).

Central Bank said the withdrawal of the DCPs from the credit information sharing (CIS) system was in response to numerous public complaints over misuse of the CIS by the unregulated digital and credit-only lenders, and particularly their poor responsiveness to customer complaints.

In March 2020, Kenyan parliament considered a petition to launch investigations into the operations of digital money lending institutions over claims of exploitation of the borrowers.

It is argued that although the upsurge of mobile bank and digital apps have become an important part of the credit system in Kenya, households and owners of small and medium-sized businesses (SMEs) have taken advantage of their mobile phones to access quick loans mostly without adequate information on the cost of the facilities.

SOURCE: TheEastAfrican