The National Treasury has drafted a bill to regulate financial institutions in Kenya in what seems as 'soft massage' to lawmakers to drop their hand stance on the contentious interest cap.
Members of Parliament are opposed to government’s effort to scrap the law that came into force in 2016.
The draft regulation, dubbed Financial Market Conduct Bill, 2018, seeks to protect borrowers from predatory nature of lenders and is proposing three regulatory bodies to supervise, license and adjudicate cases within the sector.
"National Treasury has reviewed the challenges in the consumer credit and market conduct and has developed a draft Financial Markets Conduct Bill, 2018," Treasury PS Kamau Thugge said on Wednesday.
"The draft Bill aims at creating an effective financial consumer protection makes credit more accessible and at the same time supports financial innovation and competition."
The bodies to be formed under the proposed law are Financial Market Conduct Authority, Financial Sector Ombudsman, and Financial Sector Tribunal.
If the proposal sails through, all financial institutions, including non-deposit taking ones, will have to acquire financial conduct licenses from Financial Market Conduct Authority.
The certificate is an equivalent of that of good conduct.
The proposed law states that a person shall not provide, as a business or part of a business, a financial product or a financial service to a retail financial customer unless they have a financial conduct license.
"Whoever contravenes a provision of this section commits an offence and is liable on conviction to a fine of up to Sh10 million or five years in jail," the Bill states in part.
The Authority will also establish specific hours within which financial service firms will be allowed to trade loans.
"Looking for customers outside this period could see one fined Sh5 million or two-year imprisonment for first offence. A repeat offence will attract Sh10 million or five years in jail."
The Bill is also envisioned to guard against loan hawking as lenders will be barred from entering into a regulated credit contract with a borrower if that credit is likely to expose the borrower to hardships.
Doing so could attract a penalty of Sh10 million for first offence and Sh20 million in subsequent case.