Capital Markets

CBK raises alarm over digital loan spree ahead of Christmas

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CBK Governor Patrick Njoroge. FILE PHOTO | NMG

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Summary

  • CBK will regulate monthly interest rates charged by the digital mobile lenders and borrowers’ non-performing loans if the Bill before Parliament is adopted.
  • A key aim of the Central Bank of Kenya (Amendment) Bill, 2020 is to curb the steep digital lending rates that have plunged many borrowers into a debt trap as well as predatory lending.
  • Scores of unregulated micro-lenders have invested in Kenya’s credit market in response to the growth in demand for quick loans.

The Central Bank of Kenya (CBK) has warned of undisclosed action against digital lenders to protect Kenyans from predatory lending ahead of Christmas and the resumption of schools.

Central Bank governor Patrick Njoroge on Tuesday told Parliament that the regulator was keen to protect Kenyans from unfair lending practices before adoption of a proposed law that places the digital lenders under the watch of the baking regulator.

The CBK will regulate monthly interest rates charged by the digital mobile lenders and borrowers’ non-performing loans if the Bill before Parliament is adopted.

But the law is unlikely to be ready in the coming months, prompting concerns from MPs about increased predatory lending during the festive season and the resumption of schools, which will open in January 4 after being shut in March to curb spread of the coronavirus.

“There is a chance we will not get the Bill into law before April, but we also have Christmas and schools re-opening,” Dr Njoroge told MPs.

“We will find out on the life cycle of the Bill by knowing the time they (National Assembly) have envisaged then we will talk [as central bank] and see what we can do.”

The CBK did not disclose the other regulatory interventions available to it.

A key aim of the Central Bank of Kenya (Amendment) Bill, 2020 is to curb the steep digital lending rates that have plunged many borrowers into a debt trap as well as predatory lending.

Lending rates

The banking regulator will, among others, have to approve increases in digital lending rates and other loan charges as well put a ceiling on non-performing loans at not more than twice the defaulted credit.

The digital lenders will play under the same rules as commercial banks, including having to seek the CBK’s approval for new products and pricing if the Bill becomes law.

Scores of unregulated micro-lenders have invested in Kenya’s credit market in response to the growth in demand for quick loans.

Their proliferation has saddled borrowers with high interest rates, which rise up to 520 per cent when annualised, leading to mounting defaults and an ever ballooning number of defaulters who have been adversely listed with credit reference bureaus (CRBs).

The Bill also comes amid complaints that digital lenders do not provide full information to borrowers on pricing, punishment for defaults and recovery of unpaid loans.

Digital lenders have 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.

The push to control the activities of digital lenders comes eight months after Kenya removed the legal cap on commercial lending rates.

The cap, which was introduced in September 2016, slowed down private sector credit growth as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed too risky to lend to.