Digital mobile lenders will have six months to be licensed by the Central Bank of Kenya (CBK) if Parliament adopts a proposed law to see the regulator control their products, management, and sharing of borrowers’ information.
The Bill tabled in Parliament by Gladys Wanga in her capacity as chair of the Committee on Finance, and National Planning said, “any person who before coming into force of this was in the business of offering credit facilities or loan services through a digital channel and is not regulated under any other law shall register with The Bank (CBK) within six months of coming into force of this Act.”
The key aim of the Bill is to empower CBK to supervise digital lenders to curb the high lending rates that have pushed many people into debt traps.
Additionally, It will also push out rogue players amid concerns of unethical practices such as money laundering, illegal mining of customer private data and shaming of borrowers who default on repayment.
The banking regulator will be expected to determine minimum liquidity and capital adequacy requirements for digital credit providers, similar to conditions set for operating a bank in Kenya.
Under the new Bill, digital lenders will be expected to seek CBK’s approval for new products and pricing that includes loans charges and putting a ceiling on non-performing loans at not more than twice the defaulted amount, just like other commercial banks.
The Bill demands that the firms disclose to the CBK the source of funds that the institutions are lending to curb money laundering and terrorism financing.
Those who will not comply will face a fine of Kes 5 million or a jail term of three years or both as regulators scramble to keep up with the boom in lending by financial technology (fintech) firms, including US start-ups.
However, following the new rules, analysts reckon that most fintechs will struggle to meet the harsh licensing conditions.
Tens of unregulated microlenders have invested in Kenya’s credit market in response to the growth in demand for quick loans.
The CBK had earlier raised the alarm of the credit-only mobile lending institutions being efficiently used to launder illicit cash.
The Bill also comes amid complaints that digital lenders do not provide complete information to borrowers on pricing, punishment for defaults and recovery of unpaid loans.
Digital lenders have previously been accused of abusing personal information collected from defaulters to bombard relatives and friends with messages regarding the default and asking third parties to enforce repayment.
The push to control the activities of digital lenders comes more than a year after Kenya removed the legal cap on commercial lending rates.
Digital lenders like M-Shwari, Tala and Branch are among those targeted under the new Bill.