Digital lenders call for laws that will grow sector

Borrowers of digital loans remain unfazed by tax measures that have increased credit costs over the last two years. FILE PHOTO | NMG

Digital lenders have asked the Central Bank of Kenya (CBK) and legislators to enact laws that will spur the growth of the sector.

This comes in the wake of the Central Bank of Kenya (Amendment) Bill, 2020 that seeks to curb high digital lending rates. The bill, which is yet to be approved by Parliament, will equip CBK with powers to increase digital lending rates and other loan charges as well as put a ceiling on non-performing loans at not more than twice the defaulted credit.

Online lenders will also be subjected to similar rules as commercial banks, including having to seek the CBK’s approval for new products and pricing if the Bill becomes law.

However, the Digital Lenders Association of Kenya (DLAK) proposes the setting up of minimum capital requirements, experience as well as skills requirements for key personnel heading and managing businesses, and obligatory reporting to Credit Reference Bureaus (CRB’s).

The lobby has also asked legislators to ensure transparency, honesty and fair treatment of customers in lending and debt collection before enacting any regulations.

Zenka Finance CEO Duncun Motanya (below) said the industry has the potential to grow if supported by progressive regulatory framework.

“At the same time, I believe both the industry and customers expect the legislators to support the professionalisation of the industry by creating a framework of minimum requirements for a company to become a digital lender,” Mr Motanya said.

In late 2019, the Monetary Authority of Singapore and CBK signed a FinTech Cooperation Agreement for a favourable regulatory lessons and adoption of international best practices.

Singapore became the first developed country to set up a regulatory sandbox to allow fintechs to experiment new products and services under close watch of financial market regulators.

“Regulatory sandboxes support innovation and allow authorities to actively participate in the deployment of new products and create the necessary legal frameworks for new types of services,” Mr Motanya said.

“We are very excited by the progress of these developments and hopeful that the two authorities will collaborate and accelerate efforts to develop the FinTech space in Kenya.”

High rates

This comes at a time when proliferation of loaning apps has saddled borrowers with high interest rates, which rise up to 520 percent when annualised, leading to mounting defaults and an ever ballooning number of defaulters who have been adversely listed with credit reference bureaus (CRBs).

They have also been accused of abusing personal information collected from defaulters’ mobile phone contact lists to bombard relatives and friends with messages regarding the default and asking third parties to enforce repayment.

A study, SMEs Competitiveness Report 2019 by the International Trade Centre, Ministry of Trade and Kenya National Chamber of Commerce and Industry (KNCCI) released in September last year, shows that 33 percent small traders avoid commercial bank loans despite their need for credit.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.