Kenya needs laws that protect consumers but equally support the growth of the digital lending business, according to a report by PricewaterhouseCoopers (PwC).
The professional services firm proposes that all non-deposit taking providers offering credit to the public, regardless of their business model, be bound by a set of consumer protection principles.
These include transparency and fairness in dealings with consumers, transparent pricing principles, disclosure of key terms and conditions and restrictions on certain debt collection practices.
Others are credit information reporting, marketing guidelines for consumer credit products, complaints handling and dispute resolution.
“A more appropriate regulatory model would be one that enhances consumer protection through the regulation of the conduct of credit providers over the digital lending platforms,’’ Digital Lenders Association of Kenya (DLAK) chairman Kevin Mutiso said.
The report proposes that all consumer credit providers be registered but not necessarily licensed with a relevant regulator to make it easier to monitor their conduct and take enforcement measures in the event of a violation of the code.
It further proposes that enforcement of the consumer credit code be vested in a regulator, which may be the Central Bank or any agency with a strong consumer protection mandate like the Competition Authority of Kenya.
“It is our view that the CBK, having been mandated with the regulation of non-bank financial lenders, should take an approach focused on the protection of the consumer, rather than financial regulation of the lenders,’’ PwC associate director Joe Githaiga said.
The report rules out prescription of a stringent licensing framework because it would increase the compliance burden for lenders, the costs of credit for consumers and the monitoring burden for the regulator.
It says stringent rules such as minimum capital requirements, financial adequacy, and reporting and local shareholding requirements would impose significant compliance costs on participants.
The findings follow a comparative study on digital lending across 11 jurisdictions with different regulatory regimes.
The study looked at digital lenders operations in Australia, Egypt, Uganda, India, Mexico, Nigeria, Poland, South Africa, Spain, United Kingdom and Singapore.
Most countries were found to regulate digital lenders under one or more regulatory regimes, broadly focusing on consumer credit and finance.
The PwC report comes at the time when a proposed law seeking to weed out predatory lending and regulate digital lenders is before Parliament.
The Central Bank of Kenya (Amendment) Bill of 2020 seeks to block digital lenders without operating licenses.
This aims at pushing out rogue players amid concerns of unethical practices such as overpricing of loans, illegal mining of customer data and shaming of borrowers who default on repayment.
It will also compel the CBK to publish the names of all digital lenders every four months to review those that are compliant.
Last year, the Senate Committee on Finance summoned the CBK governor to explain why digital lenders were charging borrowers interests as high as 180 per cent.
The CBK governor Patrick Njoroge once referred to digital lenders as shylocks looting from desperate borrowers.
“They (digital lenders) have grown like mushrooms in the country and are not really working for Wanjiku,” Njoroge said in 2019.
