The number of Kenyans taking mobile money loans has increased tenfold in just three years, raising calls for a law to police the unregulated providers.
The Central Bank of Kenya (CBK) told Parliament that roughly 200,000 Kenyans were borrowing money on their mobile phones in 2016 but the number had gone up to two million in 2019.
Those who use the unregulated channels mostly borrow small loans but with a high frequency of borrowing as the regulator noted there is repeat usage and people use it almost eight times per year.
The CBK also admitted that it does not know the number of operators which keeps changing.
The regulator played down the value of loans taken from unregulated players which stands at Kes 4 billion which is a tiny fraction, that is, less than one per cent of the entire banking system.
“There is growing uptake of unregulated digital credit but the number and size of the unregulated digital credit providers is uncertain,” CBK told Parliament Finance Committee.
There are two Bills in parliament, the Amendment Bill, 2020 seeks to regulate mobile money lenders, however, the scope really looks at mobile phones and excludes other digital channels that are there.
The 2021 Bill: They started way before, which is expertly seeking CBK to regulate digital channels, not only phone-based but other channels as well.
“This could be by design but will be a problem as the broad objectives are the same. CBK provided comments earlier but they have not been incorporated. At the end of the day only one will go, the 2021 Bill is much further ahead,” the governor said.
He said a letter to the same improvements were sent on May 27 and will be submitted again just for the record.
The regulator estimates there are more than 100 unregulated digital lenders that lack transparency in pricing and aggressive debt collection.
They don’t respect privacy and abuse personal data, misuse of CRB information and financial integrity is also an issue.
“You don’t know whether money is being laundered. Borrowers need to feel protected no matter who is lending. There is an issue of financial distress because of the pressures brought to them because of borrowing. The misuse of CRB information will be there until the sector is well regulated,” Dr Njoroge said.
CBK said it has started to collect data on digital lenders as 3rd party processors to the CRB. It has engaged with Fintechs in various ways and want to be clear that they do not want to inhibit innovation but it has to be in the right manner.
Some other businesses close to lending should be included to create space for a well-regulated ecosystem.
The regulator insists that a minimum standard has to be set on interest rates and capital adequacy ratios even though it will not be a stringent as banks.
Kes 1 billion is the minimum requirement for banks but what the regulator will focus on is sustainability
It is also on information; from CBK’s perspective the fight will be on data.
Lenders with brilliant proposals have had issues of data as there was no assurance of how personal data harvested will be used.
Cyber security is very important, market conduct regulation and CBK said it has benchmarked against best global practices in other countries.
From their perspective, the next step will be the enactment of the Bill then the parallel regulations will be issued then proceed to licensing.
CBK said there is a very aggressive timeline and they have every intention to meet the time lines.
“There is misconception that the CBK sits on requests. Most of the ones that were still pending was because the applicant had not submitted certain information. If they do not want to provide those they cannot go ahead, where there is the needed information the processing is quick. The point is they feel confident to confirm that they will stay within what one will expect in terms of bringing order to the sector,” Dr Njoroge said.
The point on licensing is to move away from the annual process but they want to issue a perpetual licensing regimes so no reapplication for the license.
The intention is to deal with any enforcement issues arising.