By Judith Gicobi
Digital lenders have up to six months to get new licenses from the Central Bank of Kenya (CBK) before they are permitted to operate in Kenya in accordance with the new legislation.
As the noose tightens on previously unregulated digital lenders, CBK governor Patrick Njoroge indicated on Tuesday that new regulations under a new law are anticipated to be gazetted this month.
Last December, President Uhuru Kenyatta signed legislation allowing the central bank to oversee digital lenders, giving the bank the authority to punish lenders that breach customer privacy.
“Regulations governing Digital Credit Providers will be gazetted later this month to pave way for the licensing and oversight of DCPs by CBK,” said Dr Njoroge.
“All previously unregulated DCPs will be required to apply to CBK for a license by September 2022 or cease operations.”
The Digital Credit Providers Regulations of 2021 give the CBK the authority to cancel the licenses of companies that use name-and-shame techniques to collect money by sending information about loan defaulters to other parties.
Lenders must now seek for licenses from the CBK, as opposed to merely registering to do business in the East African country.
In recent years, digital enterprises have saturated the local market, drawn by the need for rapid borrowing that does not require collateral. Borrowers get loans via their mobile phones in minutes, making digital loans a convenient way to pay everyday costs.
To control credit risk, digital lenders use data analytics and loan payback history, among other techniques, in addition to social pressure.
“The amended Central Bank Act, 2021, gives the Central Bank of Kenya authority to license digital lenders in the country as well as ensure the existence of fair and non-discriminatory practices in the credit market,” said State House last year.
Customer privacy was never guaranteed due to the absence of regulation, since these digital lenders shared user data with third parties at their discretion.
Customers who missed loan payments were also subjected to constant reminder calls from debt collectors, who utilized humiliation techniques such as phoning friends and relatives to pressure defaulters to pay.