Editorials

Fast-track CBK rules on digital lending practices

cbk

The Central bank of Kenya, Nairobi. FILE PHOTO | NMG

BDgeneric_logo

Summary

  • One only needs to look at the annual effective rates that they charge on loans to appreciate the kind of financial damage unregulated lending can do to an economy.
  • While the digital lenders had proposed self-regulation to avoid being put under CBK watch, the reality is that a financial system needs oversight to prevent abuse and protect consumer rights.
  • Putting the digital lenders under the CBK’s watch will address concerns about consumer data protection.

The signing into law of the Central Bank Amendment Bill 2021 that brings digital lenders under the watch of the banking regulator should draw a line under their predatory lending.

One only needs to look at the annual effective rates that they charge on loans to appreciate the kind of financial damage unregulated lending can do to an economy where many people are already classified as too risky to lend to by banks and rely on such loans from the digital lenders to make ends meet.

While the digital lenders had proposed self-regulation to avoid being put under CBK watch, the reality is that a financial system needs oversight to prevent abuse and protect consumer rights.

For borrowers, the expectation is that CBK regulation will protect them from absurdly high borrowing rates of up to 520 percent and obscure terms and conditions.

Borrowers have been taking loans without getting full disclosures on pricing, the punishment for defaults and the methods to be employed to recover the debt.

More importantly, they are counting on the CBK to rein in the debt shaming tactics that some of the lenders have been employing in loan recovery. The common debt shaming involves calling a borrower’s friends and family asking them to have their kin pay up or threatening to inform the borrower’s employer of the default.

The regulator also has the obligation to run a fit-and-proper test on the borrower as it issues licences, to weed out rogue lenders who don’t meet the minimum governance standards for a financial institution.

Putting the digital lenders under the CBK’s watch will also address concerns about consumer data protection. The lenders have been abusing privacy by accessing lists of contacts in a borrower’s phone and calling them to shame the customer into paying up.

Data accessed illegally can also be sold on to third parties without the owner’s knowledge, exposing their financial information to hackers.

Given that the CBK pushed for the new law after being appraised of all these shortcomings in the digital lending space, it is our expectation that it will move with speed and publish the necessary regulations to operationalise the new amendments.