Central Bank Gets Powers to Regulate Digital Lenders

  • Central Bank of Kenya (CBK) building in Nairobi.
    A file image of the Central Bank of Kenya (CBK) building in Nairobi.
    Simon Kiragu
  • The National Assembly Finance and Planning Committee has given new recommendations to the Central Bank of Kenya (CBK) (Amendment) Bill 2021 on the contentious issue of credit pricing by digital lenders.

    Members of Parliament recommended the CBK will determine and publish the framework for pricing digital credit.

    The committee proposed that the CBK be given powers to regulate digital lenders who are not regulated by any other agency or laws such as the Capital Markets Authority (CMA) or laws such as the Banking and Insurance Acts.

    Homa Bay Woman Representative Gladys Wanga
    Homa Bay Woman Representative Gladys Wanga addresses MPs on Friday, July 17, 2020.

    Notably, the House Committee recommended the CBK to regulate licensing of the digital lenders and the general conduct of their business which has seen most Kenyans describe as punitive.

    Further, the Gladys Wanga-led committee rejected proposals to grant the CBK authority to set capital sufficiency requirements for digital lenders. 

    The committee opined that the lenders were not receiving deposits and imposing the proposal on them would be prudential.

    In their recommendations, the MPs stated there is need for CBK, the Communication Authority and the Office of Data Protection Commissioner to collaborate to ensure data privacy is enhanced and protected.

    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.

    This comes amid a series of measures by the CBK to protect Kenyans from digital money lenders. Digital lending applications, which have been known for their ruthless credit collection strategies, were left counting losses after the CBK banned them from listing defaulters on the Credit Reference Bureau (CRB) in February 2021.

    The lenders were cut from CRB in October 2020 a move that led them to a per cent decrease in the amount they were lending at exorbitant interest rates.

    The regulator overruled the digital lenders' authorization to share data on CRBs that banned 337 unmonitored mobile lenders from submitting the names of loan defaulters to the bureau.

    This was a setback as it negated the borrowers'  profiles to make informed decisions. They were left without a resort on defaulters leading to the reduction.

    CBK 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.

    Mobile banking services in Kenya
    Mobile banking services in Kenya