Market leaders panic as 10 digital lenders cleared

The banking sector regulator has so far cleared just three percent of all the 288 applications eyeing the digital loans market. FILE PHOTO | NMG

The banking sector regulator has so far cleared just three percent of all the 288 applications eyeing the digital loans market, underlying the rigorous licensing process that promises to lock out hundreds of applicants from the lucrative industry.

The Central Bank of Kenya (CBK) said on Monday it had granted licences to ten players who have been in operation for just over a year, leaving market leaders scrambling to explain their differed approvals.

Mwanzo credit which began operations in January last year along with Rewot, My Wage Pay which opened doors in July 2021 at the same time as Flash Credit have gotten a nod to operate mobile loans business.

Kweli credit, which has not yet started disbursing loans, has also gotten approval while Sokohela which started operations in 2019 but scaled down as a result of Covid-19 is also making a comeback among the first companies that have received licenses.

Industry leaders including Tala, Zenka and Oye mobile are yet to receive the regulatory nod but the CBK says it has allowed all applicants to continue operations pending the conclusion of the process.

The deadline for applications closed on September 17, which means that only those that have applied will continue operating. Any new entrants will now be forced to wait for licenses to start operations.

Tala issued a press statement assuring customers and stakeholders that it had applied for licenses and will continue operating to calm its customers.

Digital Lenders Association of Kenya (Dlak) Chair Kevin Mutiso said the regulator has been overwhelmed by the sheer number of applications that numbered 288 but expressed confidence the big players will soon get approvals.

“The players that have received approvals are small representing about 0.01 per cent of the market, we have to understand that CBK regulates just about 40 banks and 14 microfinance and the sheer number of applications was overwhelming,” Mr Mutiso said.

“I used to think there are about 150 players but from the applications, we are double that number,” he said.

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, 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 with CBK seen as keen to give a nod to lenders in small lenders and the agricultural space.

Sokohela said the fact that they focus on small businesses in urban areas linked with rural agricultural farms gave them a head start.

The company also offers digital literacy, and mobile bookkeeping and helps farmers acquire smartphones for accounting. Rewot said they started retail financing in conjunction with Kenya Breweries through an e-commerce platform with an option for retailers to buy on credit, boosting inventory for small businesses.

“The process was seamless and very straightforward through a digital portal, it was very interactive and thorough they requested several documents,” Mr Mutiso said.

The regulator is keen on ensuring mobile loan borrowers no longer get hounded by intrusive phone calls to their friends and family when the default CBK officially starts regulating digital loans under the strict consumer protection rules introduced by the Digital Credit Providers Regulations, 2021.

Mobile phone lenders will also be required to disclose the total charges for their loans, including interest rates, late payment and rollover fees, before disbursing credit to customers.

The new law also gave CBK powers to revoke the licences of firms which send information about loan defaulters to third parties in name-and-shame tactics meant to recover the money.

Failure to reveal interest charges, late payment and rollover fees has been cited as a major problem bedevilling customers who turn to digital loans due to their ease of access given that they do not require collateral.

Most Kenyans are not aware of their rights and do not read the terms of the loans when signing up for credit.

This leaves them vulnerable to being saddled with costly interest rates that rise to 520 percent when annualised, triggering mounting defaults.

The use of mobile loans has grown exponentially over the last few years as low-income households have been lured into the accessible mobile loans.

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