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Digital lenders back plan to be regulated by CBK

In Summary
  • The lobby also wants all lenders to provide transparent and fair market-based pricing with no hidden or punitive fees.
  • Last week, the National Assembly asked interested individuals to email views on the proposed law to the clerk by August 11 (today).
(L-R) Ivan Mbowa East Africa Regional Country Growth manager Tala), Allan Mukui (DLAK secretary and CEO Kuwazo), Robert Masinde (DLAK chairperson and CEO Zenka
Image: COURTESY

Digital lenders have backed the proposed law seeking to empower the Central Bank of Kenya (CBK) to regulate their activities.

In a public statement, the payday lenders’ body Digital Lenders Association of Kenya (DLAK) said the move would support the development of a vibrant, health industry that provides the benefits consumers require while eliminating the harms

''We join the government and consumer stakeholders in calling for a new regulatory framework to govern digital finance so that consumers may enjoy the benefits of financial access without the risks,’’ DLAK said in a statement.

In a six-pointer recommendation, the lobby said the intended regulation should build on its code of conduct issued last year to promote the fair, transparent and honest treatment of customers in all facets of lending, including debt collection.

The lobby also wants all lenders to provide transparent and fair market-based pricing with no hidden or punitive fees, such as the endless accrual of interest on delinquent balances.

It also wants credit reporting to include near-real-time negative and positive data in order to avoid over-indebtedness and help borrowers build a positive credit history that they may leverage on got other services.

Last week, the National Assembly asked interested individuals to email views on the proposed law to the clerk by August 11 (today).

The Central Bank of Kenya (Amendment) Bill, 2020, seeks to curb the steep digital lending rates that have plunged many borrowers into a debt trap as well as predatory lending.

The proposed law seeks to expand the role of the central bank to license and regulate the micro-lenders, as well as prescribes capital requirements and is due for publishing by the end of the year

Nominated MP Gideon Keter first introduced the proposal in parliament in October last year.

If approved, digital lenders will require approval from the central bank to increase lending rates or launch new products.

Digital lending services have become an important driver of financial inclusion in the country and have proven crucial for creating the opportunity to extend capital to unbanked and other financially excluded groups.

According to the State of Digital Consumer Credit Market Report by the Center for Financial Inclusion, 86 per cent of loans initiated between 2016 and 2018 were digital.

Even so, their activities have come under sharp focus from critics who accuse them of predatory lending and overcharging borrowers.

Recent surveys show that most digital lenders are charging monthly rates as high as 15 per cent, an Annual Pricing Rate (APR) of 180 per cent.

This is 15 times more than what commercial banks charge for unsecured loans, with the current average standing at 11.95 per cent according to CBK.

In March, Mathare Member of Parliament Antony Oluoch asked the house to probe mobile moneylenders claiming that some were exploitative and operating irregularly.

Proponents of the proposed law argue that considering mobile lenders are not recognised as financial institutions under regulation and supervision by CBK under the Banking Act, they operate bereft of regulation, including tax obligations.

They have accused payday lenders of infringing on clients’ right to privacy by accessing customers’ contacts to call friends and family about the borrowers’ debt status.