Economy

Digital lenders to reveal source of funds in CBK dirty cash war

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Central Bank of Kenya Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG

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Summary

  • CBK Governor Patrick Njoroge has repeatedly warned that digital lenders offer platforms to clean dirty cash under the guise of providing cheap and easily accessible credit to Kenyans.
  • Money laundering involves transferring and disguising illegally obtained cash to make it look legitimate, and is mostly used by criminals and the corrupt to clean their wealth.
  • Unlike banks and microfinance institutions, digital lenders do not take deposits that in turn are loaned to borrowers.

Digital lenders will from September 18 be required to disclose the sources of their money to the Central Bank of Kenya (CBK) in measures aimed at curbing money laundering.

The requirement follows the gazettement of the Central Bank of Kenya (Digital Credit Providers) Regulations that compel the lenders to give details of their investors and also prove that the funds are not intended to fund criminal activities.

CBK Governor Patrick Njoroge has repeatedly warned that digital lenders offer platforms to clean dirty cash under the guise of providing cheap and easily accessible credit to Kenyans.

Money laundering involves transferring and disguising illegally obtained cash to make it look legitimate, and is mostly used by criminals and the corrupt to clean their wealth.

“A digital credit provider shall provide to the Bank the evidence and sources of funds invested or proposed to be invested in the digital credit business and demonstrate that the funds are not proceeds of crime,” say the regulations.

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

Digital lenders rely on investors who pump billions of shillings for lending to borrowers.

The law previously did not require digital lenders to disclose the source of their funds, making them convenient platforms to clean dirty cash through tens of the unregulated micro-lenders, which have flooded the market to offer credit.

An increase in the number of lenders that have flooded the Kenya market to tap into the growing need for easy-to-access loans has prompted the CBK to warn on the need of tight anti-money laundering regulations for the sector.

The lenders will now be compelled to comply with all provisions of the anti-money laundering laws that among others include flagging and reporting large and suspicious transactions to the Financial Reporting Centre (FRC).

These transactions include cash in excess of Sh1 million as the digital lenders join banks and microfinance institutions in reporting high-value transactions.

FRC and other State agencies like the Assets and Recovery Authority take action on the transaction if they believe the money is part of crime proceeds or is meant to facilitate crime.

A breach of the anti-money laundering laws attracts a fine of up to Sh25 million for financial institutions or jail term of up to 14 years or Sh5 million fine for individuals involved.

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