Digital Lenders Adopt Self-Regulation, Ethics and Professionalism

By Soko Directory Team / October 31, 2019 | 11:48 am



coronavirus

Digital technologies have opened unlimited opportunities for individuals and businesses and the ripple effect is deeply felt in Kenya where six out of ten people own a smartphone.

The proliferation of internet technologies has created a pool of 30,000 apps accessible to smartphone owners, among them, tens of digital lending apps, commonly known as loan apps.

In a proactive move to help customers and lenders by increasing transparency and introducing sanity in the market, leading fintech companies combined efforts to create an umbrella association called Digital Lenders Association of Kenya (DLAK).

Whereas the traditional finance sector operates on a rule-based regulatory framework, DLAK understands that sometimes the legal is not ethical, and, therefore, takes a principle-based approach that rides on good conduct, transparency, ethics, professionalism, and customer-centricity.

The rationale, here, is that businesses should operate on a triple-bottom-line approach that recognizes the economic-social nexus of “doing well by doing good”. It means that the industry cannot just wait for regulators to intervene as players should be able to cater to the needs of customers without exposing them to adverse practices.

DLAK understands that there are critical supply and demand-side issues affecting the market, among them, hidden costs and data privacy (supply-side) and identity fraud and high default rates for small loans (demand side). The CoC (Code of Conduct) aims at balancing the interests of the two parties to achieve a fair and reasonable standard practice.

The story of mobile lending is synonymous with the trend of financial inclusion in Kenya as 91% of loans are disbursed through mobile handsets. It is a blue-ocean trend that captures the increased access to credit for previously unbanked consumers. The leaders in mobile-based lending are backed by financial institutions, with KCB MPESA (backed by KCB) and Mshwari (owned by NCBA) controlling 82 percent of the mobile lending market.

As more Kenyans purchase smartphones, the expectation is that the number of people borrowing money from android-based apps will skyrocket. Already, the major players in this subsector (Tala and Branch) have a combined customer base of 1.52 million people.

Different surveys by institutions such as Financial Sector Deepening-Kenya (FSD) estimate the number of non-bank lenders (non-deposit taking MFIs) is between 50-100. A more detailed study is required to establish the exact number. This is one of the initiatives that DLAK will pursue with the guidance of the relevant regulators. However, most non-bank lenders (e.g non-deposit taking MFI) operating on the lending market obtain a no-objection letter from Central Bank of Kenya (CBK), making CBK a better source of the estimated total number of all phone-based money lenders.

Presently, market practices dictate that each lender provides its offer’s details including the interest rates on its webpage or the mobile application. However, without an overall body to provide a guide on what is permissible and what is not, it is difficult to achieve uniformity and unanimity in practice.

Given the rapid growth and emerging challenges in the sector, there is a need to address the need for a more focused, comprehensive and effective regulatory framework for the mobile lending space.

DLAK proposed the preparation of a comprehensive White Paper about the phone-based money lending market and market players to be followed by the recommendations and best practices drawn from all over the world. Such a report should be guided by the regulators and developed in collaboration with a prominent professional auditing/consulting firm (e.g. PWC, E&Y) with global experience and expertise in the field. The regulators are in discussions with the Digital Lenders Association of Kenya and industry experts about the prerequisites needed to undertake this process.

Such a discussion couldn’t commence before the establishment of DLAK, as holding a dialogue with every single market player would be unproductive and would go against good market practices.

Read Also: Here Are 15 Technologies Of The Next Decade For The Whole World





About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

View other posts by Soko Directory Team


More Articles From This Author







Trending Stories










Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE



ARCHIVES

2020
  • January 2020 (272)
  • February 2020 (310)
  • March 2020 (390)
  • April 2020 (322)
  • May 2020 (336)
  • June 2020 (74)
  • 2019
  • January 2019 (253)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (251)
  • July 2019 (338)
  • August 2019 (293)
  • September 2019 (306)
  • October 2019 (313)
  • November 2019 (362)
  • December 2019 (320)
  • 2018
  • January 2018 (291)
  • February 2018 (219)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (256)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (185)
  • 2017
  • January 2017 (183)
  • February 2017 (194)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (245)
  • June 2016 (182)
  • July 2016 (271)
  • August 2016 (248)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (108)
  • May 2015 (116)
  • June 2015 (120)
  • July 2015 (148)
  • August 2015 (157)
  • September 2015 (188)
  • October 2015 (169)
  • November 2015 (173)
  • December 2015 (207)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950