PARTICIPATION

CBK seeks public views on digital lending rules

Apart from debt shaming, digital lenders have saddled borrowers with high-interest rates

In Summary
  • The written submissions or representations must reach the bank by January 21 next year
  • It has also given unregulated digital lenders until then to provide their business details in order to facilitate an orderly transition

CBK Headquarters
CBK Headquarters
Image: FILE

The Central Bank of Kenya is calling for public input in the proposed Digital Credit Providers Regulations, days after President Uhuru Kenyatta signed into law giving the apex bank powers to regulate non-deposit-taking digital lenders.

In a communiqué issued Thursday, the regulator said it has three months by March 23, 2022, to publish regulations after the Central Bank Amendment Bill, 2021 was enacted into law.

“In line with the public participation requirements, CBK invites interested members of the public to provide comments on the draft Regulations that can be downloaded from the Central Bank of Kenya,’’ CBK said.

The written submissions or representations must reach the bank by January 21 next year and be addressed to the director, Bank Supervision.

The Regulations provide for among others the licensing, governance, and credit operations of Digital Credit Providers (DCPs).

They further provide for consumer protection, credit information sharing, and elaborate on the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) obligations of DCPs.

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.  

CBK said the public about the predatory practices of the unregulated digital credit providers has raised concerns, and in particular, their high cost, unethical debt collection practices, and the abuse of personal information.

It has also given unregulated digital lenders until January 21 to provide their business details in order to facilitate an orderly transition to a regulated environment.

Digital lenders seeking licenses will have to get clearance from the Data Commissioner, highlighting the stiff measures that have 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.

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

Although they have welcomed the law, digital lenders are against being licensed, saying it is unfair for them to be subjected to minimum capital requirements just like commercial lenders, yet they are not depositing taking. 

In some jurisdictions, credit-only lenders are regulated under a specific statute to avoid overlap of regulations and laws with other regulated financial services.

 Uganda has for instance the Money Lenders (Money Lenders) Regulations, 2018.

"This does not assist with the ease of doing business in Kenya for banks and microfinance institutions. There is a need therefore to re-examine the way the regulations address such lapses, "Digital Lenders Association of Kenya (DLAK) said.