CBK says five auto financing companies operating illegally

Central Bank of Kenya Governor Kamau Thugge when he appeared before the Senate Finance and Budget Committee at Parliament on December 4, 2023. [Boniface Okendo, Standard]

The Central Bank of Kenya (CBK) has declared that five dominant companies providing vehicle, motorcycle and asset financing to low-income individuals across the country are operating without authorisation.

The shocking revelation is likely to shine the spotlight on regulators and the lack of an effective customer protection framework in the country. The five lending firms have expanded their operations nationwide backed by global venture capital and have earned millions of shillings in profits from lending to low-income borrowers in return.

The lending firms have come under scrutiny for engaging in predatory lending practices. Numerous customers have voiced their grievances about being unable to settle the exorbitant interest rates, which result in them paying more than the initial cost of the goods.

The firms named as operating unlawfully include Momentum Credit Company Ltd (MCL), Mogo Credit, Watu Credit, Progressive Credit and Tugeende. The credit providers have been cashing in on the craze for quick loans among Kenyans. "Momentum Credit Ltd applied CBK to be licensed as Digital Credit Provider (DCP). MCL's application has not yet been processed - the institution has not fulfilled stipulated license requirements," said CBK Governor Kamau Thugge yesterday.

Lucrative activities

While Momentum is not licensed as a microfinance bank, it reported a profit after tax of Sh139 million in 2022, having raked in 148 million the prior year highlighting its lucrative activities.

Its total assets stood at Sh2.4 billion as of December 31, 2022, with its gross loans and advances to customers at Sh2.1 billion, compared with 2021 where total loans and advances stood at Sh1.95 billion.

Dr Thugge was responding to a question from the Senate Standing Committee on Finance and Budget which has been probing the controversial activities of the lenders.

The Senate panel chaired by Mandera County Senator Ali Roba pressed the banking regulator boss on what he is doing to protect borrowers and called for regularisation of the sector to ensure Kenyans are protected from predatory lenders. In response, Dr Thugge said Mogo and Progressive have been operating without a license despite their business activities falling within the purview of the CBK Act and Digital Credit Providers Regulations which came into effect last year.

"Mogo and Progressive are not licensed as DCPs under the CBK Act and DCP Regulations, 2022," noted Dr Thugge, adding that the duo has however submitted license applications to be licensed as digital credit providers.

Dr Thugge told the committee that Tugeende and Watu Credit have not applied for licenses nor have they been licensed to carry out digital credit business as is required under the CBK Act and DCP Regulations, 2022.

The Standard could not immediately reach Momentum, Mogo, Progressive, Watu and Tugeende for comment by press time last evening.

Nairobi Governor Johnson Sakaja previously highlighted the activities of Mogo and Watu Credit, urging President William Ruto's administration to intervene and regulate the boda boda lenders who impose exorbitant interest rates on the riders.

"One of the purposes of licensing DCPs is to ensure that consumers are duly protected from
malpractices, such as exorbitant pricing of their products," said Thugge.

"CBK thus engages with all DCP licensees to ensure that their pricing models are customer-centric and risk-based." He said CBK expects DCPs to submit pricing models that are aligned with the provisions of the law.

"Given these, CBK has been engaging with all its licensees to ensure that their pricing models are as required as per the law. All product features and prices must be reviewed and approved accordingly by CBK," he said.

"This is ongoing for the licensed DCPs as well as all applicants." Amid the complaints from customers the affected firms have announced spirited expansive putting regulations on the spot.

Mogo recently announced that it will provide credit worth Sh7 billion to small businesses and individuals who are engaged in income-generating projects and have the potential to boost productivity. Momentum Credit - a non-deposit-taking financial institution, has also been on an expansion spree.