A report by the Central Bank of Kenya revealed that mobile loan apps could be used to launder money and fund terrorist activities in the country.
The Financial Sector Stability Report shows that a majority of the lenders advancing digital loans don’t have sufficient measures to identify their customers.
The authorities say that although digital credit channels have expanded financial inclusivity by reducing borrowing bottlenecks, it predisposes the economy to risks.
“In the context of digital credit, these risks may further be amplified, as digital lenders generally do not require in-person KYC assessment prior to extending digital loans,” the report reads.
The regulator explains that the risk is caused by the fact that most apps appear to focus on advancing loans as fast as possible instead of protecting the system against possible risk.
The document reads, “This is particularly true for credit-only digital lenders that are operating outside of the regulatory perimeter and are thus not subject to the same regulatory oversight as commercial bank digital loan products.”
In 2017, FSD-Kenya, in partnership with CBK, Kenya National Bureau of Statistics (KNBS) and Consultative Group to Assist the Poor (CGAP), conducted a phone survey with 3150 Kenyans to measure the size of the market and the key characteristics of the customer base.
The research estimated that 27 per cent of Kenyan adults are digital borrowers, which translates to about six million people.
A majority of them were young people aged between 26 and 35 years who were reported to use the money for business and day to day activities.
Many of the respondents claimed they were charged fees that they didn’t expect and did not fully understand the costs associated with the loan.
