Majority of borrowers in Kenya are still being exploited by predatory digital lenders despite the Central Bank of Kenya's push to regulate the sector.
The regulator said there are 400 pending applications for digital lenders with majority of those unlicensed still in operation.
According to CBK, only 32 players are currently registered to operate in the Kenyan market.
The Senate Finance committee sought to know from CBK whether it had instituted a predatory lending detection system and whether as the regulator, they had reined in on entities abusing the law.
This after it emerged that most of the lenders were unregulated exposing borrowers to exploitation.
Senate's inquiry was triggered by petitions on four micro-lending entities imposing huge interests against the provisions of the Digital Credit Providers Regulations of 2022.
The Central Bank was expected to issue a list of compliant players by September 17 last year and shut down those that failed to meet strict consumer protection rules introduced under Digital Credit Providers Regulations, 2022.
However, CBK governor Kamau Thugge told the Senate Finance committee that a gap in law has left borrowers at the mercy of unlicensed predatory lenders since the regulator has no control over them.
The CBK digital credit providers’ regulation of 2022 states that all previously unregulated digital providers should be licensed within six months of the publication of the law.
The regulations took effect on March 18, 2022, which essentially means the firms ought to have complied by August last year.
CBK Assistant Director of Banking Supervision, Matu Mugo attributed the current scenario to the lack of a clear provision in law that expressly prevents the firms from operating until they are licensed.
“The law doesn’t say if you’re not licensed by this time you shouldn’t operate, it only speaks about submitting an application to CBK for a license,” said Mugo.
The regulator declared that five dominant companies providing vehicle, motorcycle and asset financing topped the list among those offering high interest rates to Kenyans.
Momentum Credit, Mogo, Watu, Tugende Credit and Progressive Credit are the firms that the senators now want probed.
“We realise that the digit credit providers (DCP) were not really consumer friendly that is why we brought them under CBK, we have licensed 32 quite a number a remaining,” CBK Governor Dr Kamau Thugge told senators.
CBK was given a fortnight to furnish the committee with a report detailing an audit of the digital lenders and steps taken to reign in rogue players.
“Our initial position was that we give them a deadline under which they must license otherwise they could not carry out this kind of business, "said Thugge.
He said CBK will put out a time under which the lenders should fully fall under the ambit of the CBK and are subject to onsite and offsite inspections.
