Lawmakers have given the Central Bank of Kenya (CBK) to explain the authority to regulate digital lending rates for digital lenders under a proposed law that will see the regulator monitor their products, management and share information with borrowers.
The Parliamentary Committee on Finance and National Planning approved the Central Bank’s 2021 Amendment Bill and added a clause that gives CBK the power to set interest rates on digital loans.
Now, the main objective of the Kenya Central Banks Bill (Amendment) 2021, which seeks to empower the bank regulator to regulate digital lenders for the first time, is to prevent high levels of digital credit which has resulted in many borrowers. in the debt trap as well as the loans of hunting animals.
The bill was previously silent on mortgage rates, simply stating that digital lenders should play by the same rules as commercial banks that seek CBK approval for new products and prices that include loan fees.
The report of the committee is before Parliament for debate and approval before it becomes law.
“The committee clearly gave CBK the power to determine price parameters.
This will ensure that CBK does not have to set the lending rate but instead provides criteria that digital lenders should set the cost of the loan, “said Kevin Mutiso, President of the Kenya Digital Credit Providers Association (DLAK).
Several unregulated small lenders have invested in the Kenyan credit market in response to the growing demand for fast loans.
Their proliferation has set high interest rates for borrowers, which rise to 520% on annual terms, leading to an increase in options and a growing number of variables.
With little or no access to credit, many Kenyans are now realizing that they can get loans within minutes through their mobile phones.
CBK says borrowers seeking digital credit from unregulated lenders have grown from 200,000 in 2016 to more than two million in 2019.
The bill also comes amid complaints that digital lenders are failing to provide borrowers with full information on prices, non-payment penalties and collection of unpaid loans.
Digital providers have been accused of misusing personal information collected from violators to blow up family and friends and default messages and ask other people to claim compensation.
Pressure to regulate the activities of digital lenders comes more than a year after Kenya lifted the legal cap on commercial lending rates.
The cap, which was launched in September 2016, slowed down private sector loan growth as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses who seemed to be too risky to give.
The decline in the loan led to a desire for digital lending, attracting unregulated holders to meet the growing demand for fast loans.
Market leader M-Shwari, Kenya’s first reserve and loan product introduced by Safaricom and NCBA in 2012, charges a 7.5% “facilitation fee” on credit regardless of time. Which brings its annual loan rate up to 90%.
Tala and Branch, other major players in the digital lending market, offer annual interest rates of 84-152.4% and 156-348% respectively.
In April, CBK banned unregulated digital mobile lenders from submitting the names of unpaid debtors to credit bureaux (CRBs).
The committee set out the requirements for the bank regulator to determine the minimum liquidity and adequate capital requirements for digital loan providers, in line with the conditions set for operating a bank in Kenya.
The committee rejected the proposal for capital and liquidity, saying digital lenders do not accept deposits and therefore do not pose a risk to public funds.
CBK had previously sounded the alarm on mobile lending institutions that were used to obtain illegal money.
Money laundering, which involves the transfer and concealment of ill-gotten gains, is often used by criminals and corrupt individuals to purge their wealth.
The bill requires the company to disclose to CBK the source of funds that institutions lend to combat money laundering and terrorist financing.