MPs passed the Central Bank of Kenya (Amendment) Bill of 2020 that seeks to protect borrowers from exploitative lenders.
The Bill will regulate mobile loan rates and treatment of defaulted credit in an effort to restrain any creditors from lending money to Kenyans without a license from the Central Bank of Kenya (CBK).
“The proposed amendment seeks to achieve the following objectives, prohibiting any person, institution, or firm from lending money to Kenyans unless licensed by the Central Bank of Kenya,” read a notice on the bill.
Kenya’s credit market has been flooded with investments from small unregulated lenders due to the increase in demand for quick loans.
This has in turn burdened borrowers with high-interest rates, leading to a gradual rise in defaults and defaulters who have been listed with Credit Reference Bureaus (CRBs).
Although the CBK currently regulates banks and micro-lenders, the Bill will now grant it supervisory and licensing powers to oversee hundreds of digital lenders operating in the country.
The government, in September 2016, introduced a legal cap on commercial lending rates that not only limited lending from private-sector creditors, but also saw commercial banks withhold from lending to low-income customers and small and medium-sized businesses that they deemed too risky to lend to.
The CBK Amendment Bill was presented before the National Assembly Committee on Finance and National Planning after which Kenyans and other stakeholders are expected to review and present their opinions before it is taken back to parliament for debate and vote.
Most households in Kenya and small-and-medium-sized businesses (SMEs) rely on digital apps to access the credit system.
In 2020, more than 3.2 million Kenyans linked to digital loans had been blacklisted.
According to research done by Digital Credit, Financial Literacy, and Household Indebtedness, digital borrowers are twice as likely to default compared to those who take conventional loans.
