Digital Lenders Have Nine Days to Get New Licenses

Digital lenders have until September 17 to obtain the new licenses or cease operations. The fresh licensing directive by the Central Bank of Kenya (CBK) is aimed at streamlining the industry by remitting cases such as loan overpricing and misuse of customers’ data.

In March, CBK gazetted the new regulation that restricts mobile loan lenders from sharing the borrower’s information with third parties to harm their reputation. This is after it came out that some lenders were pursuing defaulters in shameful ways like accessing their phonebooks and informing the defaulters’ friends and families via contact information.

Equally, digital lenders have been accused of hiding the full terms of their credits to customers leading to costly interest rates.

Some of the major players in digital lending include M-Shwari, Tala, Branch, and IMoney.CBK governor Patrick Njoroge said the Digital Credit Providers regulations seek to address public concerns and provide for consumer protection and credit information sharing.

The new regulations require digital lenders to set interest rates for their loans within parameters approved by the CBK to protect borrowers against predatory lending which has driven many into the debt trap.

Additionally, digital credit providers are required to put appropriate policies, procedures, and systems to ensure the confidentiality of customer information and transactions. Moreover, they shall not share customer information with any other person except with the customer’s consent.

CBK also barred digital credit providers from inviting or collecting deposits in any form, including the taking of cash collateral as security for loans, in carrying out digital credit business. Failure to honor this rule will attract suspension of licenses.

The new directive follows the signing of law the Central Bank Bill 2021 by President Uhuru Kenyatta which brought digital lenders under the watch of the banking regulator for the first time in December.

The CBK act 2021 requires lenders to seek approval from the banking regulator to price their loans and products, subjecting them to the same rules as commercial banks. In addition, the law grants CBK powers to revoke permits of digital lenders who breach rules on confidentiality while pursuing defaulters.

Related Content: Digital Lenders Given 6 Months To Register With CBK