CBK gives mobile lenders until September to apply for new licences

Digital lenders have up to six months to acquire new licences from the Central Bank of Kenya (CBK) before they are allowed to operate in the country in compliance with the new regulations that have been formulated.

CBK governor Patrick Njoroge said on Tuesday the new regulations under a new law are expected to be gazetted this month as the noose tightens on the previously unregulated digital lenders

President Uhuru Kenyatta last December approved a change in law that allowed the central bank to regulate digital lenders, a move that gave the bank power to rein in lenders who violate consumer privacy.

“Regulations governing Digital Credit Providers will be gazetted later this month to pave way for the licensing and oversight of DCPs by CBK,” said Dr Njoroge.

“All previously unregulated DCPs will be required to apply to CBK for a license by September 2022 or cease operations.”

The Digital Credit Providers Regulations, 2021 gave CBK powers to revoke licences of firms which send information of loan defaulters to third parties in name-and-shame tactics meant to recover the money.

Under the new legislation, lenders are required to apply for licenses from the CBK, as compared to previously, when they only had to register to set up operations in the East African country.

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.

Besides social pressure, digital lenders rely on data analytics and loan repayment history among other tools to manage credit risk.

“The amended Central Bank Act, 2021, gives the Central Bank of Kenya authority to license digital lenders in the country as well as ensure the existence of fair and non-discriminatory practices in the credit market,” said State House last year.

The lack of regulation meant that customer privacy was never guaranteed as these digital lenders arbitrarily shared user data with third parties.

Besides, customers defaulting on loan repayments faced unending reminder calls from debt collectors, who also used shaming tactics like calling friends and family to compel defaulters to pay.