CBK sets September as deadline for registration of digital lenders

Digital lenders have up to the end of September this year to register with the Central Bank of Kenya (CBK) or close their operations in the country.

CBK Governor Dr Patrick Njoroge said yesterday the regulations for digital credit providers (DCPs) are now ready and will be gazetted this month, enabling it to oversight lenders that have saddled many Kenyans with huge debt.

CBK in December last year published the draft Digital Credit Providers Regulations, 2021 and now says it has received public views and incorporated them in the final document.

“The regulations will be gazetted later this month to pave way for the licensing and oversight of digital credit providers by CBK,” said Dr Njoroge in an address to mark World Consumer Rights Day.

“All previously unregulated DCPs will be required to apply to CBK for a licence within six months of the publication of the regulations, that is by September 2022, or cease operations. We are now in business.”

Digital lenders will pay Sh5,000 as an application fee and thereafter if the application is accepted, an annual licence fee of Sh20,000 if the CBK draft is retained.

It is not clear if clauses in the draft regulations such as barring digital lenders from blacklisting defaulters of up to Sh1,000 loans or arbitrarily varying interest rates will be retained.

CBK has proposed a Sh500,000 fine on digital lenders who use threats, violence or other criminal means to physically harm the person, reputation or property when collecting debts.

Digital lenders will also not be allowed to use obscene or profane language or make “unauthorised or unsolicited calls or messages to a customer’s contacts” in the name of recovering defaulted loans.

CBK also wants to bar digital lenders from charging interest that exceeds the principal owing at the time a loan falls into default.

The regulations will remove the lacuna that had attracted public outcry about the pricing of digital loans and the extent that lenders could go in recovering their money from defaulters.

The proliferation of digital credit led to the usage of unregulated apps rising from 0.6 per cent of Kenya’s adult population in 2016 to 8.3 per cent in 2019, before slowing to 2.6 per cent in 2021.

“Consumers have raised concerns relating to unregulated digital lenders including predatory practices, in particular the high cost, unethical debt practice and abuse of personal information,” said Dr Njoroge.

The bait by digital lenders is the quick turnaround time on extending credit, which makes many borrowers blind to the high-interest rates.

A joint survey by CBK, FSD Kenya and Kenya National Bureau of Statistics showed that 50.9 per cent of the respondents said they had defaulted on mobile loans.

President Uhuru Kenyatta assented to the Central Bank of Kenya Amendment Act, 2021 on December 7 last year. The law became effective on December 23, giving CBK licensing and oversight powers over the previously unregulated digital credit service providers.

Dr Njoroge has been aggressive on consumer protection and recently rolled out the National Payment Strategy, which targets a secure, fast, efficient and collaborative payments system.

The CBK governor said yesterday the cost of mobile money transactions has been a cause for concern to consumers, with some of the charges not easily understood by the average customer.

He is now pushing for full interoperability of payment service providers to build on the 2018 move that allowed sending of money across mobile money platforms. The overall aim is to provide customers with seamless, secure and affordable functionality to send and receive money from any financial institution across the payments ecosystem,” said Dr Njoroge.