Regulators cautions public against mobile loan providers

Mpesa transaction between an agent and a subscriber. [Photo/Courtesy]

NAIROBI, KENYA: The Government has warned the public against dealing with digital credit providers, saying many of them were operating illegally.

This is after six regulators in the financial sector issued a joint public notice on emerging unregulated mobile lenders, with some exposing borrowers to losses.

Although digital credit providers such as Branch and Tala are registered as companies, the Government told borrowers to only go for financial providers that are “regulated and licensed.”

“We wish to draw the attention of the general public to the emergence of unlicensed and unregulated financial services and products,” read in part the notice published in the local dailies yesterday.

The notice was signed by the Capital Markets Authority, Central Bank of Kenya (CBK), Insurance Regulatory Authority, Ministry of Trade, Industry and Co-operatives, Retirement Benefits Authority and Sacco Societies Regulatory Authority.

“These services include online pyramid schemes, credit and savings schemes as well as fraudulent mobile loan applications downloadable from mobile app stores, including Google Play and Apple Store,” said the regulators.

The notice has left digital credit providers in an awkward position.

Although all the features of the fraudulent financial services, products and applications did not apply to the likes of popular apps Branch and Tala, the notice gave a list of licensed financial players that did not include the two, pointing to the challenge of regulating the fintech firms.

“The purpose of this notice is to warn members of the public against unlicensed and unregulated financial services and products, and remind them to deal only with genuine and licensed institutions,” read the notice.

CBK, which regulates commercial banks, deposit-taking microfinance institutions and mortgage financiers had not responded to our queries by the time of going to press.

Branch International says on its website that it is incorporated under the laws of Kenya for “the mobile application software, the data supplied with the software and the associated services.”

Registration fee

The notice by the State agencies said that besides asking for registration fees, some mobile apps require members to save before qualifying for credit besides promising an unusually high return.

They also rely on investment strategies that cannot be understood and may also require members to recruit more members to earn benefits. These operators have no registered premises, websites and addresses.

One of the mobile loans providers, Okolea International, says on its website that borrowers need to pay an “appraisal fee,” a feature that the regulators describe as a “registration fee” that the public needs to look out for.

Attempts to reach Okolea were unsuccessful as their phone went unanswered.