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CBK and digital lenders to discuss regulatory framework

By Wainaina Wambu | May 5th 2020

Tensions between the Central Bank of Kenya (CBK) and digital lenders have begun to cool after the two sides agreed to hold discussions.

According to CBK Governor Patrick Njoroge, the digital lenders have reached out to his office for talks that could see a regulatory framework accommodating them, mooted.

Speaking last week during the Monetary Policy Committee (MPC) meeting, Dr Njoroge said the framework might soon see the loan apps fall under CBK supervision, putting a stop to their long unregulated run. 

Njoroge had scoffed at their role in the credit market, branding them "a flea in the economy".

The digital lenders have for long been accused of charging high interest rates, using crude methods to recover loans, and predatory lending tactics by offering loans to borrowers with no means to pay back.

After his attack on the loan apps during the MPC meeting, Njoroge announced that the lenders had reached out for talks on regulation.

“Digital mobile lenders have offered to have a conversation with the CBK. We hope to soon develop a framework that will guide them in their operations,” said the CBK boss.

Kevin Mutiso, a spokesperson for the Digital Lenders Association of Kenya (DLAK) confirmed that DLAK is in talks with the CBK. He however refused to divulge further details on how the framework will look like.

DLKA represents 17 loan apps. Kenya has no written regulations for digital mobile lenders. Both the National Treasury and CBK have been in disagreement on how the mobile lenders should be regulated. 

Treasury in 2018 came up with rules that would have roped in all unregulated financial providers, but they were shot down following an outcry by CBK.

CBK opposed a Treasury idea to create the Financial Markets Conduct Authority, a new body responsible for policing the lenders.

Mutiso, however, said that Njoroge had been supportive of the industry despite his terse words to the loan apps. “The Governor is not anti-digital lending. He has been very supportive of the industry thus far,” said Mutiso.

In the Treasury laws, mobile lenders were to be prohibited from advancing loans outside prescribed hours. They had also been barred from varying their interest rates. Those who broke the laws were to be fined Sh5 million. 

Millions of Kenyans have been listed on Credit Reference Bureaus (CRBs) by the digital mobile lenders for loans as little as Sh500. In his press briefings, Njoroge has constantly hammered at the digital lenders. Last week, he powerfully told off the money apps daring them to close shop if they don’t want to submit to regulation.

Last month, CBK also withdrew approvals that gave the lenders access to CRBs, leaving them with little means of gauging borrowers credit-worthiness. Despite their perceived rogue tactics, the digital mobile lenders have helped widen financial inclusion. 

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