Mobile digital lenders will be barred from blacklisting borrowers who default on loans of less than Sh1, 000 in proposed regulations that will come into force in March next year.
The proposed Digital Credit Providers Regulations, 2021 say that the lenders will only forward names for defaults of over Sh1,000 to credit reference bureaus (CRBs) in a bid to protect millions of Kenyans whose ability to borrow has been hurt by the listing for defaulting payment of the soft loans.
Digital lenders who breach this requirement risk losing their operating licences in addition to undisclosed fines from the Central Bank of Kenya (CBK).
The regulations are part of changes to the law that gave CBK powers to approve interest rates for digital lenders, bringing the mobile lending firms under a similar operating environment like banks and microfinanciers.
“A digital credit provider shall not submit to any credit reference bureau any negative credit information of a customer or any other person where the amount related to the credit information does not exceed one thousand shillings,” reads the proposed law.
The regulations are undergoing public scrutiny ahead of their gazettement before March 23 when CBK will start regulating the hundreds of digital lenders in Kenya in a bid to stem predatory lending.
Data from the country’s three CRBs shows that borrowers who have defaulted on digital loans of less than Sh1,000 make up the bulk of 4.6 million borrowers blacklisted as at start of this month.
The government had from April to December last year suspended negative listing of borrowers owing less than Sh1,000 to protect borrowers reeling from layoffs and salary cuts that hurt their ability to repay loans.
In September, President Uhuru Kenyatta announced a moratorium on the negative listing of borrowers with loans below Sh5 million with CRBs for a year, a directive that has, however, been challenged in court.
Digital loans have gained popularity due to their ease of application for borrowers seeking quick cash free that does not require collateral.
But hidden charges that rise up to 520 percent per year have led to mounting defaults and an ever-growing number of defaulters.
The lenders have also been pursuing defaulters by informing their friends and family using contact information scraped from their phones or by threatening to tell their employers.
Digital firms have in recent years flooded the local market, attracted by demand for quick credit that does not require collateral. Borrowers get loans within minutes via their mobile phones, making digital loans a quick fix for daily bills.