Digital lenders call for laws that will spur sector growth

Digital lenders have asked legislators and the Central Bank of Kenya (CBK) to enact non-restrictive 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, set for debate before Parliament, will grant CBK powers to regulate digital lending rates in what is seen as a key step to tame an industry that has for years remained un-regulated.

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

But the Digital Lenders Association of Kenya (DLAK) proposes to add provisions concerning the non-applicability to digital lenders of other provisions of the Central Bank of Kenya Bill (“Bill”) than those indicated in the regulations. This is because digital lenders use their own capital as they are non-deposit-taking institutions, and have a limited scope of activities such as granting small loans.

DLAK Chairman Kevin Mutiso said applying the same rules to digital lenders as for banks is asymmetrical and would create an enormous regulatory and compliance burden for digital lenders that they will not be in a position to bear.

“They are small and lean organisations that do not have the luxury of creating big and costly compliance and legal departments as is the case for banks,’’ said Mr Mutiso.

DLAK also proposes that regulations should focus on the registration processes instead of licensing This, Mr Mutiso noted, is a common practice for the digital lenders regulations implemented in the European Union jurisdictions such as Spain and Poland.

He added that digital lenders can be removed by the CBK from the register only if the requirements to obtain the registration are not met, or at the digital lender’s request.

Mr Mutiso further added that digital lenders do not take deposits from the public and lend their own investments, profits, and capital, and as such, they do not pose a prudential risk and thus, capital adequacy requirements or prudential regulations are not a reasonable framework for the industry.