The High Court has dismissed a petition seeking to declare the operations of four digital credit providers as illegal because they have not been licensed by the Central Bank of Kenya (CBK).
The court said although Mr Mark Muko had pleaded his case against Mwananchi Credit Ltd, Platinum Credit Ltd, Izwe Loans Ltd and Premier Credit Ltd precisely, the correct procedure would have been to exhaust the available dispute resolution mechanisms before moving to court.
The court ruled that the provisions of the Regulations to the Microfinance Act provide a dispute resolution mechanism through which complaints ought to be raised before the regulator.
“The court notes that the petitioner has not in any way averred or demonstrated that this mechanism has already been explored and a resolution communicated to the petitioner, hence the necessity for this petition,” said the court.
In a judgment on February 20, the court was satisfied that the petition was not only prematurely, but also improperly before the court.
Mr Muko filed the case arguing that the microlenders were operating without license and that the CBK has prolonged the issuance of license thus violating his consumer protection laws under Article 46 of the Constitution.
He sought the invalidation of contracts and the lenders to be compelled to refund interest, fees, penalties and other charges to customers.
Mr Muko submitted that the digital lenders infringed upon and violated his rights as a consumer by operating their various named businesses without any licenses.
He faulted the banks’ regulator over the alleged failure to perform its duty of issuing the requisite licenses to the lenders.
He maintained that the lenders were not licensed Microfinance Business of Digital Credit Providers within the meaning of Section 3(1) and related provisions of the Microfinance Act, 2006 and connected provisions.
It was his argument that the lenders are constitutionally obligated to refund and compensate all the borrowers from whom they have illegally and fraudulently received and earned interest, fees, penalties and connected charges.
The lenders opposed the case arguing that he had not demonstrated the specific provisions said to be infringed or the manner in which they are alleged to have been infringed.
The lenders added that a petition must be precise on how a right or fundamental freedom guaranteed under the Constitution has been denied, violated, infringed, or is threatened.
The firms said Mr Muko had not established a clear connection between the alleged constitutional violations and the petition is laced with ambiguity and confusion and there is no clarity in the presentation of factual situations to the extent that the claims have not been substantiated.
The court heard that the licensing procedure is rigorous, lengthy, intensive or comprehensive as it involves three stages including submitting names for consideration and approval, file and electronically submit application for licensing and the provision of data for testing before issuance of a license.
The court heard that once the CBK has satisfied itself that all the requirements have been met, it has the discretionary power to grant or reject an application for a license by written notice addressed to the applicant within 60 days from the date of receipt of an application under Section 33S (5) of the Central Bank of Kenya Act.
The regulator said the cessation of operations of digital credit providers cannot be done in haphazard or un-methodological manner as argued by Mr Muko.
And by hearing the case, the court will be usurping and interfering with CBK’s constitutional and statutory mandate to register, license, regulate and supervise the operations of the digital credit providers.
