Digital lenders to come under CBK regulations in six months

Central Bank of Kenya (CBK) has been handed powers to license and supervise digital lenders.

This is after President Uhuru Kenyatta yesterday passed into law the Central Bank (Amendment) Bill, 2021 that will also give CBK powers to suspend or revoke licences of digital credit providers.

The law now removes the regulation lacuna that had attracted public outcry about the pricing of digital loans and the extent that lenders could go in recovering their money from defaulters without breaching privacy.

The law was among the three Parliamentary bills signed by President Kenyatta, including the Public-Private Partnership Bill that has capped at 30 years the maximum time within which build-operate-transfer projects will fully revert to the State.

This means investors who fund the multi-billion-shilling infrastructural projects such as roads and rely on toll fees to recover the money will have up to 30 years to recoup their investments and also book a return.

Uhuru also assented to the Trustees (Perpetual Succession) (Amendment) Bill, which sought to simplify the registration of trusts.

The refreshed law, among other changes, shifts the administration of the process from the Cabinet secretary to the office of the principal registrar of documents to fasten the process and realise the growth of trusts.

Digital Lenders Association of Kenya (DLAK) Chairperson Kevin Mutiso told The Standard on the phone that the lenders coming under CBK is a win for consumers and the fintech community. 

“This is a positive step for the industry and the fintech community worldwide, and we look forward to working closely with the regulator to protect the consumer and to continue to develop innovative solutions for this market,” he said.

“The future of digital lending under this law is more innovative products for the informal sector entrepreneur and continued growth of our sector.”  

Eyes will now shift to the CBK, which will be required to make regulations to operationalise the amended Act.

The regulations will touch on registration and management requirements, credit information sharing and reporting for digital lenders.

The development offers mixed returns for borrowers, with CBK Governor Patrick Njoroge’s having recently said that “we are not going into that part of the world again” when asked if the regulations were going to introduce a cap on interest rates.

Digital lenders have been blamed for steep interest rates on the short-term loans that have plunged many borrowers into a debt trap.

“Regulation of prices is not a good idea so for us it is a good signal that CBK is progressive and wants to solve the customer protection issues. That has been the real issue,” said Mr Mutiso.

DLAK has also argued that prices are informed by factors such as customers’ willingness and ability to repay and the costs associated with disbursement, collection and reminders to clients.

DLAK members were lending between Sh2 billion and Sh4 billion monthly to between four million and six million people but have since trimmed this to under Sh2 billion.

The Act gives CBK three months to effect it with digital lenders required to register with the regulator within six months of the coming into force of the Act.

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