REGULATION

Fintechs call on CBK, Treasury to deepen guidelines on digital loans

In Summary
  • This comes barely seven months following the launch of code of conduct by the digital lenders’ lobby in June last year
  • A recent study  by FSD  shows some mobile lending apps are operating with virtually no regulatory controls
Tala app, an online financial micro-lending platform, a mobile phone in this photo illustration
Tala app, an online financial micro-lending platform, a mobile phone in this photo illustration
Image: REUTERS

Digital Lenders Association (DLAK) has called for stronger guidelines and regulations by the Central bank and the National Treasury in order to shield consumers from rogue mobile lenders using the regulatory vacuum to swindle cash and personal data from unsuspecting users.

“Our goal is to collaborate closely with Central Bank of Kenya and the national treasury to ensure that we protect the consumer, find a win-win solution for taxation and do our part in assisting them in maintaining financial stability,” said DLAK’ acting spokesperson Kevin Mutiso in an interview.

This comes barely seven months following the launch of code of conduct by the digital lenders’ lobby in June last year in which DLAK said such a move would empower consumers to have access to clear pricing while empowering them to make informed decisions on the loan product that best meets their needs.

 

This would also include details such as the principal, interest, fees, tenure and other items into separate line items that have visual representations such as calendars to indicate due to dates for payment when past due periods begin and other key timelines.

Kenya built a reputation as a pioneer of financial inclusion through its early adoption of a mobile money system, notably MPESA that enables people to transfer cash and make payments on cellphones without a bank account.

Since then, an explosion of lenders has replicated the same technology to extend credit to the banked and unbanked alike, burdening borrowers with high-interest rates and leaving regulators scrambling to keep up.

“We want to draw Kenyan's attention to the fact that for their financial safety, they should always verify if the lenders they intend to borrow from are listed on DLAK's website before they share their private information with them,” said Mutiso.

In 2019 the government, Financial Sector Deepening (FSD) and the Bill and Melinda Gates Foundation in a study found that dozens of mobile lending apps are operating with virtually no regulatory controls, while some apps also set arbitrary fees, and are often malfunctioning – something the association reckons has to be relaxed.

“We strongly believe that close cooperation between leading lenders and regulatory bodies will reinforce the financial market in Kenya and boost its development in the right direction,” commented Duncan Motanya the Chief executive of Zenka Finance, a digital lending institution.

In a 2019 FinAccess report released in April by the Central Bank of Kenya, Kenya National Bureau of Statistics and FSD Kenya, financial inclusion showed that the country had grown from 75 per cent in 2016 to 82 per cent last year on the back of digital lenders.

 

However, the prevailing question was whether the reported financial inclusion is translating to real poverty alleviation.