UNDER WATCH

New law ends digital lenders debt shaming

The head of state also signed other four bills into law

In Summary
  • The law is expected to end debt shaming by some digital lenders
  • The new law also requires CBK to publish a list of all licensed digital money lenders in the Kenya Gazette.
President Uhuru Kenyatta delivers the State of the Nation Address in Parliament on November 30, 2021.
President Uhuru Kenyatta delivers the State of the Nation Address in Parliament on November 30, 2021.
Image: EZEKIEL AMING'A

Digital borrowers will access loans at lower interests with less worries about debt shaming after President Uhuru Kenyatta signed the Central Bank Amendment Bill 2021 yesterday.

Non-deposit-taking credit-only providers have remained largely unregulated for a long time, with several abusing the freedom to charge high interests and debt shame their customers.  

The new law gives CBK powers to revoke the permits of digital lenders who breach the confidentiality of personal information to pursue defaulting borrowers.

It also requires CBK to publish a list of all licensed digital money lenders in the Kenya Gazette.

The law comes to play at a time of increased complaints of debt collection agents pursuing borrowers either by informing their friends and family using contact information from their phones or by threatening to report to their employers.

“The bank may suspend or revoke a license by written notice to the holder of the license if the licensee (digital lender) is in breach of subsection (2A) or the conditions of the Data Protection Act or the Consumer Protection Act,” the law reads in part. 

Digital lenders seeking licenses will have to get clearance from the Data Commissioner, highlighting the stiff measures that has put in place to protect abuse of borrowers’ information.

The Data Protection Act bars sharing of data with third parties without consent and gives individuals the right to be told when their data is being shared and for what purposes.

Borrowers share personal information, including their professions and monthly earnings, when registering with digital lenders.

The Central Bank of Kenya (CBK) has previously raised concern about the misuse of borrowers  personal data and called on lawmakers to fast-track legislation to provide for the regulation of digital lenders.

An applicant will be required to provide to CBK the agreement it has with the telecommunication services provider on whose platform the applicant intends to provide the digital lending services together with the proposed terms of use of the digital lending service to be given to its customers.

Apart from debt shaming, digital lenders have saddled borrowers with high-interest rates, which rise up to 520 per cent when annualised, leading to mounting defaults and an ever-ballooning number of defaulters.

Tala and Branch, some of the top players in the mobile digital lending market, offer annualised interest rates of 84- 152.4 percent and 156- 348 percent respectively.

Market leader M-Shwari, Kenya’s first mobile-based savings and loans product introduced by Safaricom and NCBA in 2012, charges a “facilitation fee” of 7.5 per cent on credit regardless of its duration, pushing its annualised loan rate to 90 per cent.

Although the law does not put a cap on interest to be charged by digital lenders, CBK will ensure borrowers are charged reasonably and will be from time to time accessing products offered by service providers. 

Speaking at the signing ceremony at the State House yesterday, Uhuru said the law is part of reforms in the financial sector to ensure transparency in a bid spur financial inclusivity.

''The law requires every person intending to undertake the business of a digital money lender to first obtain a license from CBK. This is to ensure discipline in the market,'' Uhuru said. 

The Committee on Finance and National Planning backed the Bill in August, paving the way for its passage into law.

Last week, CBK Governor Patrick Njoroge who has been critical of some digital lenders abusing freedom, terming them modern-day shylocks said he was looking forward to the bill becoming a law. 

"This is to provide the central bank with the authority to regulate the digital lenders. This is something which has been long overdue, that we've come all this way and we are looking forward to it becoming law,'' Njoroge said during a post-Monetary Policy Committee press briefing last week. 

The law gives the apex bank powers to revoke or suspend the license of digital lenders who do not disclose full information on loan facilities to borrowers, in line with the Consumer Protection Act.

The head of state also assented to the Public-Private Partnership Bill, Tax Appeals Tribunal (Amendment) Bill, Trustees (Amendment) Bill and Kenya Deposit Insurance (Amendment) Bill.