Central Bank moves to rein in ‘exploitative’ mobile lenders

Cropped shot of a group of unidentifiable businesspeople using their smartphones in a huddle. [Photo: Courtesy]

The Central Bank is pushing for strict regulations to police digital loan platforms by bringing them under the National Payment System Act.

CBK Governor Patrick Njoroge told the National Assembly’s Departmental Committee on Communication, Information and Innovation yesterday that many Kenyans had become hooked to the platforms, most of which charge exorbitant interest.

“I want to confirm today that these platforms are worse than the village shylocks. At least the shylocks hide. These platforms shout about themselves openly on the internet while impoverishing Kenyans,” Dr Njoroge told the committee at Parliament Buildings.

“For a very long time, we have been in the dark on how to approach the regulation of these platforms. This is why we approached the Communications Authority (CA) and the Competition Authority to find how we can rein them in. We will now pursue them through the National Payment System Act.”

Under the Act, the digital loan platforms will face tight scrutiny as CBK will conduct regular audits and inspections of their systems.

CBK will also review their fees and interest charges and ensure they are consumer-friendly.

Financial literacy

The platforms will also be required to publish information useful to customers, including tariffs, quality of service and statistical information.

Njoroge said the regulator’s statistics showed that about 6.5 million Kenyans are digital borrowers.

Of these, he said, at least three per cent take the loans to try their luck in betting.

The governor said it was worrying that most of those who take the loans lack financial literacy and borrow from one network to pay off another, ensnaring themselves in a vicious cycle of debt.

There are more than 25 digital credit providers, with new services being launched continually, according to a recent report by online marketplace Jumia.

Tala Kenya, formerly Mkopo Rahisi, and Branch are the most popular, especially among low-income earners.

Expressed amazement

The committee chairman, William Kisang, had earlier said he was amazed at the lack of regulation on the financial technology (fintech) companies operating the platforms.

“What CBK does is simply warn Kenyans about these platforms. They don’t go ahead to actually try and regulate them, something that has exposed the consumer to a lot of exploitation at the hands of the fintech companies operating the platforms. What is even worse is that most of the Fintechs are international companies only here to make profits” said Mr Kisang.

Governor Njoroge, however, defended CBK, saying the regulator was legally tasked by law to only regulate financial entities that accept deposits.