Millions of mobile loan borrowers can breathe a sigh of relief after the Central Bank of Kenya got a tool to reign in on predatory providers.
The House Finance and National Planning committee has okayed the Central Bank Amendment Bill 2021 which carries a clause that mandates the banking sector regulator to control the interest rates charged on digital loans.
For a significant length of time, mobile loan providers in Kenya have been exploiting borrowers by charging hefty interest rates on loans.
The Central Bank of Kenya (Amendment) Bill, 2021, empowers the CBK to supervise digital lenders, effectively checking steep digital lending rates that have plunged many borrowers into a cyclic cycle of debt.
In April, the CBK barred dozens of unregulated digital mobile lenders from listing names of loan defaulters to credit reference bureaus (CRBs)
The House committee, however, shelved a proposed requirement for the CBK to set a lower ceiling on liquidity and capital adequacy requirements for digital credit providers noting that such entities do not take deposits from the public and, therefore, pose no risk.
The new law requires that the mobile lenders disclose to CBK the source of their funds in a move that is aimed at curbing money laundering as well as terrorism financing.
In July, CBK asked Parliament to legislate digital lending business as the number of Kenyans taking mobile loans surged tenfold in just three years, raising calls for a law to police the unregulated providers.
An estimated 200,000 Kenyans were borrowing money on their mobile phones in 2016 but the number of active borrowers had gone up to two million in 2019.
“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.
According to the CBK, there are over 100 unregulated digital lenders that hardly come clean on their loan pricing let alone adopting overly aggressive debt collection methods.
The mobile loan sharks don’t respect privacy and abuse personal data, and they misuse CRB information.
“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,” CBK Governor Dr Patrick Njoroge said.