Central Bank of Kenya (CBK) Governor Patrick Njoroge has heightened the onslaught on digital lenders, saying they might be conduits for cleaning dirty money.
At a press briefing in his office yesterday, Njoroge compared the ubiquitous mobile lending platforms to “your typical money laundering schemes”, which he said pose a serious threat to the country’s financial health.
Dr Njoroge’s salvos against mobile lenders have intensified in recent weeks, with the governor insisting that they have to be reined in.
“Where are they getting the money from? I mean, you can see that this could be your typical money laundering scheme,” he said at his post-Monetary Policy Committee (MPC) briefing.
“So it is important to understand why these institutions need to be regulated,” added the governor, noting that digital lenders have to be put under a different regime from that of commercial banks.
Some digital lending platforms have reportedly raised funds, especially from the Silicon Valley.
For example, Branch, which has over one million users, has in recent times raised Sh7 billion to deepen its ability to meet the rising demand for mobile loans.
When he appeared before the Senate Committee on ICT two weeks ago, Njoroge said credit-only mobile entities are too exploitative in their repayment terms as they are currently not within the regulator’s purview.
He urged lawmakers to come up with regulations for the digital lenders.
“These entities are not regulated by the financial regulator. It is a big problem for us; it’s not just a lacuna but a huge lacuna in law,” said the CBK boss. The banking regulator had initially recommended that mobile loan providers be regulated under new guidelines stipulated in the Banking Charter.
According to the Banking Charter, for digital products, provision of the abridged version of the terms and conditions to consumers using Unstructured Supplementary Service Data (USSD) format is critical before acceptance of the product.
“Terms and conditions of their products, including but not limited to allowance of cooling-off period, customer complaint processes, protection of consumer data and privacy should be disclosed,” said CBK.
The lender of last resort has since requested all commercial banks to label their mobile loan products as “approved by CBK” to differentiate them from those of unregulated financial institutions.
“If the thing sounds too good to be true, it is too good to be true,” said Njoroge.
There are currently over 25 digital credit providers.
The lenders under the aegis of the Digital Lenders Association have in the recent past defended themselves against such accusations, saying they are open to regulations.
We are undertaking a survey to help us improve our content for you. This will only take 1 minute of your time, please give us your feedback by clicking HERE. All responses will be confidential.