Parliament backs return of CRB for mobile phone loans

MPs have backed a revised Bill allowing digital lenders to resume reporting loan defaulters to credit reference bureaus (CRBs).

The parliamentary committee on Finance and National Planning approved the Central Bank Amendment Bill 2021 and agreed to include a clause to allow digital lender submit reports to the CRBs.

Digital lenders were ordered to stop filing reports with CRBs in April last year in what the regulator said was a response to widespread abuse of the credit information sharing system.

“The committee agreed to the proposal so that digital lenders are allowed to disclose any positive or negative information of its customers to the licensed credit reference bureaus,” the committee said about its review of the Bill.

“The information so provided must be only that which is necessary for the discharge of the function of the digital lenders and the licensed credit reference bureaus.”

The proposed law will see the regulator control the digital lenders’ products, pricing of the loans, management and sharing of borrowers’ information.

The lenders, comprising those issuing credit through mobile phones and the Internet, were accused of aggressive tactics, including threatening borrowers with negative listing.

Once digital lenders fall under the watch of the CBK, the regulator will be able to supervise their use of credit information sharing like banks, saccos and other entities currently using the system. The Bill gives the unregulated digital lenders six months to fall under the regulation of the CBK, which will license compliant firms.

Besides threats, digital lenders have also been accused of erroneous negative listing of borrowers.

Credit information sharing is one of the most powerful risk-management tools for micro-lenders who typically don’t take collateral from borrowers when issuing the short-term loans.

A negative listing makes it nearly impossible for one to take a loan from another credit provider, serving as a deterrence against default.

The lock-out of digital lenders from CRB listings saw a 50 percent decline in loans issued over mobile phones. The Digital Lender Association of Kenya (DLAK) estimates that the value of loans issued each month fell by half to Sh2 billion.

The unregulated digital lenders have issued a total of Sh4 billion, less than one percent of the banking sector’s Sh3.1 trillion gross loan portfolio.

They have, however, caught the attention of the government for their predatory business practices, including sky-high interest rates and aggressive loan recovery.

The CBK will have express powers to control lending rates of digital mobile lenders if the proposed law is passed. The committee added a clause that gives the CBK powers to price interest rates for digital loans.

The Bill was initially silent on the lending rates, only stating that the digital lenders were to play under the same rules as commercial banks that seek the CBK’s nod for new products and pricing that includes loan charges. Besides curbing predatory business practices by the digital lenders, the Bill seeks to address concerns of illicit financial transactions, including money laundering.

Customers of digital lenders have also complained about being charged fees they did not expect and not being made to fully understand the costs or fees associated with loans.

Most of them are oblivious of the terms and conditions that include frequent SMS notifications and surrender of their personal data to third parties.

Some alternative lenders have used social pressure tactics to collect loans like informing their customers’ relatives and friends of their default.

China is among the countries that have intensified their control of micro-lenders. The Asian nation recently banned the firms from issuing credit to college students to curb overlending.

China also caps interest rates on micro-loans at up to four times the rate set by its central bank, the People’s Bank of China.