TAMING LENDERS

CBK Governor says digital lending needs regulation

The Central Bank of Kenya (Amendment) Bill, 2020, seeks to curb the steep digital lending rates

In Summary
  • Njoroge was speaking during a virtual Senate Standing Committee where he engaged with various senators on the operations of digital lenders.
  • Senator Mutula Kilonzo Jr also called for the quick passing of the Bill and noted that many unregulated lenders have been ‘stealing’ from Kenyans.
Mobile lending app
Mobile lending app

The Central Bank of Kenya wants the proposed regulations to regulate digital lending expedited.

Governor Patrick Njoroge told the Senate  Finance and Budget Committee the proposals mark a first step for a comprehensive way forward in over-sighting unregulated credit providers and promoting a robust credit market.

“We would like a focus bill on unregulated digital credit providers that will avoid conflict with already regulated digital financial services providers,” said Njoroge.

Senator Mutula Kilonzo Jr called for the quick passing of the Bill and saying many unregulated lenders have been ‘stealing’ from Kenyans.

“We need at least some minimum requirements for these digital lenders to start running in the country as they are really tricking gullible Kenyans who have little or knowledge on how they work,” he said.

The Central Bank of Kenya (Amendment) Bill, 2020, seeks to curb the steep digital lending rates that have exposed many borrowers into debt traps and predatory lending.

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

It also seeks to expand the role of the central bank to license and regulate the micro-lenders, as well as prescribes capital requirements 

A survey on interests charged by some digital lenders in Kenya by the Star last year showed that most of them were 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.

Digital lending has grown exponentially in Kenya over the last few years on account of high mobile penetration in the country and also ease of use.

Unregulated digital lending in turn has also grown, according to the FinAccess Survey 2019, use of unregulated digital credit has grown from 0.6 per cent (200,000) of Kenya’s adult population in 2016 to 8.3 per cent (approximately 2 million people) in 2019.

CBK data show that growing uptake of unregulated digital credit is currently uncertain but they are more than 100, in April 2019 they were 92.

Njoroge has been a fierce critic of digital lenders, saying they are worse than village shylocks.

"At least shylocks hide. These platforms shout about themselves openly while impoverishing Kenyans," Njoroge told a Parliamentary Committee meeting in August last year.

Njoroge has however started cautiously warming up to Fintech.  In a recent Global Digital Finance Governance  conference he said digitisation has been the silver lining in the dark cloud of the coronavirus pandemic.