'You are like a flea in the economy': CBK Governor to digital lenders

Central Bank Governor Patrick Njoroge has intensified attacks against digital lenders, dismissing their role in the credit market, which he mockingly likened to a “flea in the economy.”

Speaking at the post-Monetary Policy Committee press briefing in his office yesterday, Dr Njoroge said the digital lenders’ decision to stop lending after the onset of the Covid-19 pandemic was inconsequential, with the volume of their loans estimated at one per cent of the economy. In a no-holds-barred attack, the governor told the firms to either submit to regulation or to ship out to the “Wild West” where he said they belong.

Those that believe they can’t survive in a sector under supervision, that is fine they can go,” said Njoroge.

“I think the expectation that just because somebody is lending using a mobile phone they can do whatever they like... maybe they can go to the Wild West, that is where they belong not in a proper economy.” While unregulated digital and credit-only lenders have opened lending to a segment of the population that banks have avoided thus helping deepen financial inclusion, they have also been accused of charging high interest rates and using crude methods to recover their loans.

They have also been accused of predatory lending, providing loans to borrowers without the capacity to pay back.

Unfortunately, there is no State regulation for these lenders, with the National Treasury and Central Bank of Kenya (CBK) shifting the onus of crafting the rules on the other.

Some critics have argued that Njoroge’s hard-stance against the digital credit providers is anti-innovation, claiming that innovation always comes before regulation.  However, Njoroge has been adamant that the continued existence of digital lenders poses a major risk to the country’s financial system.

“You cannot open a kiosk anywhere without a licence,” said Njoroge, noting all over the world, finance and health are the highly regulated sectors.

This comes barely a week after CBK withdrew approvals granted to the lenders to credit reference bureaus (CRBs) as third-party credit information providers, in effect leaving them as digital shylocks with little means of determining the credit-worthiness of borrowers.

“The withdrawal is in response to numerous public complaints over misuse of the CIS (Credit Information Sharing) by the unregulated digital and credit-only lenders, and particularly their poor responsiveness to customer complaints,” said CBK, noting that they will no longer submit credit information on their borrowers to CRBs. The MPC, CBK’s highest decision-making organ, on Wednesday slashed its benchmark lending rate to seven per cent from 7.45 per cent that it had set on March 23. the firms, under the aegis of the Digital Lenders Kenya Association have in the past expressed their willingness to be regulated.