Yatani goes after digital lenders with licence plan

The government has set its eyes on digital lenders as it seeks to protect Kenyans from rogue creditors but also tax the profits that the apps have been making through exorbitant interest rates.

National Treasury Cabinet Secretary Ukur Yatani said in the Budget Statement on Thursday that the government intends to rope the digital lenders into the tax net.

The number of borrowers on mobile lending platforms continues to grow amid the negative impact of Covid-19 on the incomes of many Kenyans.

The proposal to license online lenders is expected to significantly boost government revenue as the number of foreign and local service providers rises.

“In order to unlock the full potential of digital lenders, the government proposes the licensing of digital credit service providers,” Yatani said in his speech to Parliament.

Central Bank of Kenya has recently drafted the CBK (Amendment) Bill, 2021, in which it seeks to place digital lenders under its supervision to curb what it has in the past termed predatory lending by the firms.

The Bill expands CBK’s mandate to regulate lenders offering credit facilities through mobile lending applications. The lenders will require a licence while CBK will publish a list of all digital lenders every four months, leaving out those that do not comply with the law.

CBK last year barred all unregulated digital and credit-only lenders from submitting names of loan defaulters to credit reference bureaus (CRBs) for blacklisting, dealing a major blow to their debt recovery measures as many borrowers saw it as a free pass to default without any repercussions.

Before the ban, the lending apps used the blacklisting to discourage defaulters.

This worked well for them, with many borrowers fearing being blacklisted as it would mean one could not access loans from other financial service providers, or be locked out of an employment opportunity where potential employers asked for a CRB clearance certificate as one of the requirements.

CRBs use the information provided by financial service providers to create reports on each borrower containing data on all the loans they have ever received and the repayment pattern with a status assigned on a scale of good to blacklisted.

Good shows that the borrower has been compliant in repaying loans, whereas a blacklisting indicates a default or not paying according to the agreement with the lenders.

The reports are critical as all lenders consider the information before giving a loan.

Kevin Mutiso, the chair of Digital Lenders Association of Kenya, said the move by the Treasury to license the lenders is a step in the right direction, adding that the sector can help steer economic growth.

“We are happy that all stakeholders are lining up to venture into this critical sector, and hope the government can continue engaging for us to fully exploit the potential of digital lenders,” he said.