Tala and Zenka are some of the big digital lenders missing out from a list of licensed mobile loan providers approved by the Central Bank of Kenya (CBK).
This is as the top financial regulator moved to tighten the noose on the previously unregulated digital lenders which have flooded the market with quick loans and predatory lending behaviours and debt shaming.
CBK yesterday announced it had approved only ten out of 288 firms that had applied for licenses to provide digital loans. The crackdown comes three years after a distressed borrower committed suicide prompting CBK to swing into action.
Now, both major local and Silicon Valley-backed mobile lenders face the shock of being locked out of the lucrative mobile lending market.
The ten firms which floored the ‘big boys’ to get the coveted CBK nod are mainly small-sized and have been in the market only for a few years.
They include several financial startups led by Kenyans under 30 years old, according to a spot check by The Standard yesterday.
The CBK said it received 288 applications since March this year and has worked closely with the applicants over the last six months in reviewing their applications. The CBK also said it engaged other regulators and agencies pertinent to the licensing process, including the Office of the Data Protection Commissioner.
“So far, 10 applicants have now been licensed as Digital Credit Providers (DCPs), pursuant to the CBK Act and the Regulations,” said the CBK. “Other applicants are at different stages in this process, largely awaiting the submission of requisite documentation.”
The CBK urged applicants yet to receive approvals to submit the pending documentation expeditiously to enable completion of the review of their applications.
“All other unregulated DCPs that did not apply for licensing must cease and desist from conducting digital credit business,” it said.
CBK Governor Patrick Njoroge has been one of the biggest critics of the digital lenders accusing them of rogue tactics.
Millions of Kenyans have also had to surrender their privacy, contacts, and location in exchange for exorbitant mobile loans that have short-term interests of up to 30 per cent. This opens them up to harassment through text messages and phone calls.
An earlier study showed that more than half of loans taken through mobile phone platforms were in default in the wake of Covid-19-induced job cuts and business closures pushing thousands of people into a debt trap.
Retired President Uhuru Kenyatta last December approved a change in the law that allowed CBK to regulate digital lenders from September this year, a move that gave the bank power to rein in lenders who violate consumer privacy.
Chairperson of the Digital Financial Services Association of Kenya Kevin Mutiso, - which says it represents DCPs - said that regulation under CBK creates confidence from borrowers in the digital lenders by providing “minimum standards for consumer protection.”
“Those ten that have been approved are small and new, but the good thing is that the CBK has said the approval process is ongoing and those that have submitted applications can continue with the business,” said Mutiso.
Digital micro-lender Tala which is yet to get a nod recently raised Sh17.4 billion ($145 million) for onward lending and expansion in its key four markets including Kenya - taking the battle for the popular mobile loans to local commercial banks’ doorsteps.
Tala said yesterday it would follow up on its application with the regulator and would continue to operate as a DCP “pending issuance of our license by the CBK.” “We would like to reassure our stakeholders, including our customers and employees, that Tala submitted its application for the requisite license in advance of the CBK’s deadline of 17th September 2022, and we are working with the CBK with regards to our application,” it said in a statement amid uncertainty over its operations.
Digital lender Branch International has corrected the impression that it was one of the firms that are yet to be licensed by the CBK. It runs the popular lending app Branch and recently acquired an 84.89 per cent majority stake in Century MFB, a local microfinance bank. The banking regulator’s licence, therefore, allowed it entry into the microfinance sector.
"The CBK approved the majority stake acquisition of Century Microfinance Bank Limited (Century MFB) by Branch International Limited on January 1, 2022, making Branch MFB the first digital microfinance bank in Kenya," says the lender.
The newly licensed and little-known DCPs welcomed their nod by the CBK in separate interviews with The Standard.
“The approval now gives us legitimacy,” said Emmanuel Aloo the managing director of Giando Africa Ltd (Trading as Flash Credit Africa) which provides salary loans via mobile phone.
The chief executive officer of Jijenge Credit Ltd, Peter Macharia Kamau said the licensing marks a new era for digital providers.
“The uncouth ways of handling customers will now stop. It’s a benefit to Kenyans as a whole and this shows that our financial sector has come to age and it’s being managed excellently by the CBK.”
According to Beth Wambui Mwangi, the founder of MyWagepay, one of the companies that got the CBK nod, the start-up will infuse financial wellness programmes into its lending activities.
“We have partnered with a financial wellness coach. We will teach people about emergency wellness even as we lend to them,” said Ms Wambui whose startup has won accolades for financial wellness.
Nickson Onyango, the chief executive of Sokohela, which lends to traders in the agriculture value chain including mama mboga (greengrocers) said the CBK nod ends regulatory uncertainty and gives players like his firm the impetus to expand their financial services.
“The licence gives us the confidence to roll out our products across the entire country and look for more funding,” he said.
According to John Kunyiha, the managing director of the youth founded and led Rewot Ciro Ltd, one of the approved firms, the licence will allow them to scale and target more customers.
“The process was rigorous and required assessments and commitments of data privacy, money laundering, and loan parameters,” he said.
In 2019, the CBK made a shocking revelation that a middle-aged man took his life after failing to withstand harassment and public shaming by an unnamed digital lending firm.
[Story updated to clarify information about Branch - Editor]