•DCPs are regulated by the Central Bank of Kenya under the Central Bank of Kenya Act (Chapter 491) and the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022.
•The boda boda sector has emerged as one of the key sectors driving uptake of the buy-now-pay later models for devices and appliances.
Image: EZEKIEL AMING'A
A legal gap that prevents the Central Bank of Kenya from regulating buy-now-pay-later businesses could see borrowers continue to suffer higher interest rates and harsher repayment terms.
This was revealed during a committee session between Central Bank Governor Kamau Thugge and members of Parliament on Thursday.
The National Assembly Committee on Finance and National Planning sought to know the role of CBK in asserting control over the interest rates charged by firms involved in lending to Kenyans under the BNPL models.
The committee chairman Kuria Kimani, pointed out that the regulations CBK is using to govern the sector are those of Digital Credit Providers and do not actively cover the BNPL firms.
“We all need to agree that there is a gap because the matter in question does not fall under digital credit channel and that’s why these people are exploiting our boda boda people because they don’t fall under the DCPs,” said Kuria.
DCPs are regulated by the Central Bank of Kenya under the Central Bank of Kenya Act (Chapter 491) and the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022.
The MPs put Thugge to task to explain how the firms operating in the space fall under the regulations of CBK.
Baringo North member of parliament Joseph Makilap argued that in the model there is no exchange of funds, but under the interest rates there is no clear guideline on how these businesses come under CBK oversight.
“It is a hire purchase and we want to know if oversight of hire purchase companies falls under CBK and not under trade. Because we may be discussing something that doesn’t fall under its mandate,”
The CBK had argued that the High Court in a 2022 ruling held that non-deposit-taking microfinance institutions are digital credit providers (DCPs) and are therefore subject to oversight by the Central Bank of Kenya (CBK).
The DCPs that operate as banks or MNOs fall under the regulations or oversight provided by the Central Bank of Kenya, Communications Authority of Kenya, Competition Authority of Kenya, and Office of the Data Protection Commissioner.
The Central Bank of Kenya (Amendment) Act] 2021 sought to bring on board previously unregulated fintech DCPs that leverage smartphone apps.
Subsequently, the complying fintech DCPs were brought under the supervision of CBK and adherence to the requirements of Section 19 of the Data Protection Act, 2019.
“There is this confusion that we are currently witnessing and that’s why they are taking advantage. Do they fall under the CBK Act or microfinance regulations?” paused the committee chair.
The boda boda sector has emerged as one of the key sectors driving the uptake of the buy-now-pay-later models for devices and appliances.
The model according to industry players has skyrocketed in popularity, especially among young and low-income consumers who may not have ready access to traditional credit. The legislators argue that this has exposed the victims.
“This is a new area that is not properly regulated and does not have any supervision from CBK and many Kenyans have moved there. It is now upon MPs and CBK to see how we can protect Kenyans from this latest manipulation of business.” Added Makilap.
Central Bank acknowledged this as a legitimate concern and assured that a team will be set up to address the matters raised and seal any gaps that are currently in regulations.
“Once we identify those gaps we can come back and see how to close all these gaps,” added Thugge.