Economy

​​​​​​​Digital lenders protest CBK nod delay amid Google ban

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Central Bank of Kenya Governor Patrick Njoroge addressing members of the Finance Committee for the National Assembly on December 1, 2022. PHOTO | LUCY WANJIRU | NMG

Digital lenders are protesting delays in getting operational licences from the Central Bank of Kenya (CBK) amid their blockade from Google Play store and apathy from funders that provide cash for onward lending.

An estimated 278 digital credit providers (DCPs) still await the CBK’s nod after filing applications with the banking regulator last year, dimming their Kenya operations.

The regulator last September offered 10 lenders permits under a fresh licensing regime that seeks to rein in those who practise predatory lending and violate consumer privacy.

While the 278 firms have been allowed to continue with their business as they wait for the CBK to complete the licensing process, they face credibility risks that are derailing operations.

The firms, which raise billions of shillings for onward lending to cash-hungry Kenyans, are struggling to source fresh funds from jittery investors who are demanding CBK certification before they can release the money.

Multiple executives with the firms awaiting CBK clearance told the Business Daily that they risk a cash crunch should the delays persist.

Unlike banks and microfinance institutions, digital lenders do not take deposits that in turn are loaned to borrowers.

Read: Market leaders panic as 10 digital lenders cleared

US tech giant Google has since December 15 declined to host mobile loan applications without CBK permits on its PlayStore.

This means millions of short-term borrowers are unable to download or get an update on personal loan apps from lenders who are yet to get licences.

Play Store allows web and android users to access applications for their phones.

“Currently we only accept declarations and licences from entities published under the Directory of Digital Credit Providers on the official website of the CBK,” says Google.

Google’s policies come amid heightened scrutiny of the digital loan providers in the market that has witnessed a proliferation of lenders.

In addition to charging high-interest rates, consumers say the digital lenders have been infringing on their data privacy by bombarding the contacts they have saved on their mobile phones with calls and messages when they default.

This forced the passage of a new law in December 2021 that for the first time brought digital lenders under the watch of the banking regulator.

“The truth is that we are worried it’s taking too long. We believe that the CBK may be suffering from capacity issues and is overwhelmed by the number of applications,” one of the digital lenders told the Business Daily, seeking anonymity for fear of CBK reprisals.

According to CBK (Digital Credit Providers) Regulations, 2022, the central bank was supposed to issue licences to qualifying digital lenders within 60 days of application.

The 278 lenders met the September 17 licensing deadline, indicating that more than 120 days have lapsed without the regulator issuing fresh permits.

“Other applicants are at different stages in this process, largely awaiting the submission of required documentation expeditiously to enable completion of the review of their applications. All other unregulated DCPs that did not apply for licensing must cease and desist from conducting digital credit business,” the CBK said on September 19.

Digital lenders seeking the CBK’s licensing are required to submit multiple documentation that runs hundreds of pages per applicant, a process that is partly blamed by the credit providers for the delays in issuing the permits.

Sources say the CBK met the digital lenders in mid-December to discuss their growing grievances and promised to fast-track the applications.

The regulator offered licences to 10 players, with the majority having been in operation for less than two years, leaving others — including market leaders — grappling with the reasons for their deferred approvals.

Of those licensed, Mwanzo Credit and Rewot Ciro began operations in January 2021 while My Wage Pay opened doors in July 2021 at the same time as Flash Credit.

Kweli Credit, which had not started disbursing loans, also received CBK’s approval.

Sokohela, which started operations in 2019 but scaled down as a result of Covid-19, made a comeback among the first companies that have received licences.

Industry leaders, including Tala, Zenka and Oye mobile, are yet to receive the regulatory nod but continue operations pending the conclusion of the process.

Read: How Google Play changes will affect digital lenders

The players say the licensing process was thorough and interactive, with the regulator poring over all the details submitted by the digital loan providers.

Under the new rules, the lenders were supposed to furnish the regulator with a Certificate of Incorporation and Memorandum and Articles of Association of the applicant and that of any significant shareholder.

Directors, chief executives, senior officers and significant shareholders would also undergo a fit and proper test from the regulator, which also required disclosure on the source of funds and pricing models.

The digital lenders say the regulator was also keen on which gap in the market the mobile solution will serve.

The CBK was also seen as keen to give a nod to lenders in the small business and agriculture space.

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