Digital lenders have up to September 17 to apply for fresh licenses from the Central Bank of Kenya (CBK) or close shop.
The cut off date seeks to lock out operators who will not be compliant with the recently gazetted Digital Credit Providers regulations.
The new regulations focus on addressing high-interest rates, unethical debt collection practices, and the misuse of personal data by some digital lenders.
Under the new rules, the regulator anticipates to restore order in digital lending firms prone to consumer abuse in total disregard of the country's updated National Payment System.
Major players in the digital money lending space include Tala, Branch, M-Shwari, M-Coop and IMoney.
CBK has forbidden lenders from sharing customer information with any other person except with the customer’s consent, or without seeking permission under the law.
They have equally been prohibited from submitting negative credit information of a customer or any other person to a Credit Reference Bureau ( CRB) where the outstanding amount relating to the credit information does not exceed Sh1,000.
A lender who intends to furnish negative information about a customer to a CRB will be required to notify the borrower at least thirty days prior.
Digital debtors will also no longer worry about threat, violence or other means of harm from lenders to their reputation or property if they do not settle their loans.
Debt shaming and high-interest rates made borrowers shy away from unregulated digital loans, with applications dropping by 6.2 per cent in 2019.
Use of obscene or profane language sent to the customer or the customer's references for purposes of shaming them could now lead to the suspension of the lender's operation licence.
Lenders will no longer be allowed to access the customer’s phone book or contacts list and other phone records for purposes of sending them messages in the event of untimely payment or non-payment.
Posting customer’s personal or sensitive information online or on any other forum or medium shaming purposes has also been prohibited under the new regulation.
In December, President Uhuru Kenyatta approved the Central Bank Amendment Bill, 2021 giving CBK powers to regulate non-deposit-taking credit providers who have remained largely unregulated for a long time.
The law empowers the regulator to revoke permits of digital lenders who breach the confidentiality of personal information to pursue defaulting borrowers and those charging extremely high rates on loans.
With the Data Protection Act in place, the lenders must also be cleared by the Office of Data Protection Commissioner (ODPC) to control the processing of data.
Meanwhile, digital lenders are still waiting for court to decide on their petition barring KRA from collecting or demanding payment of 20 per cent excise duty on fees charged on loans.
The additional taxation on fees charged on all digital loans was introduced after an amendment to the Excise Duty 2015 of the Finance Act.
The Digital Financial Services Association of Kenya argues that the new tax will expose lenders to double taxation contrary to the constitution.
