Corporate

Taming mobile loan sharks abusing the credit information sharing system

JAREDGETENGA

Jared Getenga, the chief executive of the Credit Information Sharing Association of Kenya. PHOTO | POOL

brianngugi_img

Summary

  • The Business Daily spoke to Jared Getenga, the chief executive of the Credit Information Sharing Association of Kenya (CIS Kenya), a local lobby for credit reference bureaus (CRBs) on how a new code of conduct aims to introduce sanity.

Mobile lending apps have become an easy source of credit for Kenyans who do not have accounts with commercial banks and access to other traditional financial institutions, or the regular income needed to borrow from such lenders.

But the industry remains largely unregulated, exposing consumers to incidents of breaches of their rights.

Some digital lending apps face accusations of collecting data on location, call records, and text messages, many times from unknowing customers, to make financial decisions.

Some lenders have also been accused of using data from borrowers’ phones to shame them when they default on the loans, in some cases making threatening calls to the borrower, and sending text messages to close contacts in their phone books.

The Business Daily spoke to Jared Getenga, the chief executive of the Credit Information Sharing Association of Kenya (CIS Kenya), a local lobby for credit reference bureaus (CRBs) on how a new code of conduct aims to introduce sanity in the fast growing digital lending sector and protect consumers.

HOW WILL THE NEW CODE OF CONDUCT HELP TAME RISING COMPLAINTS OF IMPROPER CONDUCT AMONG DIGITAL LENDERS AND AMONG CONSUMERS?

The credit information sharing (CIS) industry code will govern non-regulated credit providers to ensure that various challenges are addressed including: unnecessary data disparities in the CRBs, failure to submit consumers’ positive data, failure to update data regularly, slow response to customer queries and customer disputes, delays in correcting erroneous customer data, and lack of physical offices or operational telephone contacts.

CIS Kenya will be monitoring implementation of the code and the compliance, including data quality, consumer protection and consumer-centricity of lenders. The code provides for various sanctions and penalties applicable to errant CIS participants.

It also provides a remedy for consumers disputing their credit information through Tatua Centre, an alternative dispute resolution centre run by CIS Kenya. Lenders will be required to adhere to high data standards.

WHAT ARE THE EXPECTED SANCTIONS FOR NON-COMPLIANCE AND WILL THEY BE STRINGENT ENOUGH TO BE DETERRENT?

This will be determined by the technical committee that reports to the CIS Governing Council. It will involve penalties or suspension from sharing credit information with the CRBs and will be done in consultation with the regulator.

HOW WILL YOU COLLABORATE WITH THE REGULATORS TO ENFORCE THE SANCTIONS?

The code of conduct provides for quarterly reports to the regulator. In addition, the sanctioning process in the code is incremental and some of the sanctions require approval of the Central Bank of Kenya (CBK), hence CIS Kenya will work closely with the regulator.

The code also provides for a technical committee to monitor compliance and ensure proper market conduct by subscribers.

WILL THE NEW CODE BRING ABOUT ETHICAL BORROWING IN THIS INDUSTRY?

The code sets the tone for ethical borrowing by requiring such critical reforms as availability of credit information in all CRBs.

This will seal existing loopholes which deny lenders access to customers’ negative information that is not available across all CRBs.

WHAT CRITERIA IS CIS KENYA USING TO ENLIST CREDIT PROVIDERS WHO APPLY FOR SUBSCRIPTION TO THE CODE OF CONDUCT?

The first precondition for subscribing to the code of conduct is approval by the CBK to participate in the CIS mechanism.

The vetting tool developed with support from FSD Kenya will be used by CRBs to undertake due diligence before recommending any credit provider for CBK approval.

CIS Kenya will offer capacity building to credit providers to enable them achieve compliance requirements.

FROM THE TEST RUN YOU UNDERTOOK, ONLY FIVE DIGITAL LENDERS OUT OF 16 WERE COMPLIANT. DOES THIS MEAN WE ARE LIKELY TO GET ONLY A SMALL NUMBER OF REGULATED DIGITAL LENDERS IN THE MARKET?

The CBK’s criteria for licensing digital lenders will be prescribed in regulations to be issued after enactment of the CBK Amendment Bill, 2021.

The test run undertaken by CIS Kenya was limited to ability to comply with data submission requirements.

BANKS HAVE HAD A YEAR’S HEADS UP USING THIS CIS MECHANISM WHILE DIGITAL LENDERS WERE OUT. HAS THAT RESHAPED THE MARKET?

Any lender who has access to the CIS mechanism is able to make faster and more credible lending decisions using credit scores.

Digital lenders who will be licensed under the new legal framework (CBK Amendment Bill, 2021) will be guided by the CBK regarding participation in the CIS framework.

WHAT WILL HAPPEN TO THOSE WHO DO NOT MEET THE DEADLINE TO SUBSCRIBE TO THE CODE OF CONDUCT?

The CBK has set a deadline of December 31, 2021 for all approved unregulated credit providers to subscribe to the code. Since this is a regulatory requirement, non-compliance will attract sanctions available under the law.

These sanctions include financial penalties and withdrawal of CBK approvals.

WHAT ARE THE BENEFITS OF MEMBERSHIP?

CIS Kenya will support member institutions by building their capacity to submit quality data to the CRBs and resolve disputes amicably through mediation services available at Tatua Centre.

[email protected]

In the Headlines