IS THE REGULATION OF DIGITAL LENDERS IN KENYA LONG OVERDUE?

Digital lending has revolutionized the traditional ways of lending worldwide. Kenya in particular has seen a drastic rise of digital lenders for over a decade since the emergence of mobile applications and an increase of smartphones. 

Digital lenders are seen to target all persons including the disadvantaged and the low-income people unlike traditional lenders who accord loans only to the financially stable, those who have collateral, those who could repay loans together with interests and requisite fees and those who are able to access their banking halls. The main aim of digital lending was to help people move out of poverty on the contrary it has led to over indebtedness and the good intentions are seen to be insufficient.

One of the main concerns in digital lending is that it lacks a regulatory framework hence they are not regulated by any financial regulators. On the other hand, traditional lenders specifically commercial banks and micro lenders are regulated by the Central Bank Act. The lack of regulation has caused heated debates among the public and at the legislature. The lenders have been accused of taking advantage of the lack of regulation hence engaging in unethical practices such as consumer exploitation, charging exorbitant interest rates, data privacy violations, lack of defined offences and clear redress as relates to the offences.

Digital lenders charging unjustly high interest rates is one of the major concerns that point towards the need for proper regulation. This has also led to a high rate of defaulters for instance some digital lenders charge between 14% and 15% monthly interest rates respectively which equates to 168% and 180% annually which is higher than the rate set for commercial banks which is currently between 13% and 14% per annum.

Recently, parliament proposed an amendment to the Central Bank Act, the Central Bank (Amendment) Bill No. 10 of 2021, however it is yet to be passed. 

 The proposed new law aims to licence and supervise digital lenders countrywide. In the past there were efforts to regulate digital lenders by the National Treasury who proposed the Market Conduct Bill, 2018 which has never been passed and the Central Bank (Amendment) Bill No. 47 of 2020. These amendments largely focused on regulation of financial products and services including digital credit services.

The Central Bank Bill 2021 seeks to cure the shortcomings of the previous Bills and to remove predatory lending by regulation of all mobile loan providers. The Bill also compels CBK to publish the names of all digital lenders every four months so as to review those that are compliant.

It has taken a long time to formulate protective measures for the consumers and to formally regulate the digital lending space. The rapid growth of the fintech industry has brought about the dire need for urgent regulation that is effective and reasonable to enforce. These regulations should curb dishonest players and at the same time protect its consumers.