Mobile Loan Apps Face Deregistration in CBK Reforms

  • Central Bank of Kenya (CBK) building in Nairobi.
    A file image of the Central Bank of Kenya (CBK) building in Nairobi.
    Simon Kiragu
  • The Central Bank of Kenya has proposed a number of far-reaching reforms that will see it regulate and deregister rogue mobile lenders that have crept into the Kenyan money lending market.

    The Central Bank of Kenya (Amendment) Bill of 2020 seeks to regulate mobile loan rates that have seen many Kenyans plunge into huge debts. Data by Metropol Credit Reference Bureau (CRB) revealed that 14,035,718 Kenyans had been blacklisted by January 2021. 

    Further, the proposed law seeks to weed out unscrupulous lenders who get involved in unethical practices such as money laundering, illegal acquiring of customer's private data, and shaming of defaulted borrowers.

    A person using a phone
    A person using a phone

    The CBK had earlier raised an alarm of the mobile digital platforms which the regulator claimed were easily being used to launder illicit cash.

    The regulator, through the new bill, demands all mobile creditors to disclose their source of funds that the institutions are lending to curb on the vice.

    Kenya's credit market has been flooded with investments from various unregulated lenders due to the increase in demand for quick loans.

    This led to an increase in the number of defaulters listed with CRBs as Kenyans couldn't contend with the high interest rates.

    In 2020, more than 3.2 million Kenyans linked to digital loans had been blacklisted as compared to 2.7 million Kenyans in 2019.

    This mostly involved the youth as well as small and medium-sized businesses who rely on digital apps to access the credit system.

    According to research by Digital Credit, Financial Literacy and Household Indebtedness, digital borrowers are twice as likely to default as compared to those who take conventional loans. 

    Initially, unregulated digital lenders had limited lending to only select customers in order to curb losses. Digital Lenders Association of Kenya (DLAK) chairman Kevin Mutiso had noted that the lenders would only target borrowers with a good repayment history.

    "We are currently only lending to the best customers, those who understand that they have to pay. Most borrowers initially were borrowing with no intention to pay back," Mutiso stated.

    Kenyan Currency notes.
    Kenyan currency notes.
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