President Uhuru Kenyatta on Tuesday signed into law the Central Bank of Kenya (Amendment) Bill 2021 which will allow the regulation of digital lenders.
“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 the president’s office.
The bill gives all digital lenders a six months ultimatum ( June 7th 2022) to be registered by the Central Bank.
“Any person who before the coming into force of this Act was in the digital credit business and is not regulated under any other law shall apply for a license… within six months of publication of the regulations,” according to a clause in the law.
While considering the bill Kenyan lawmakers noted the need for three regulators – Central Bank, Communications Authority and Office of the Data Protection Commissioner to work closely to ensure that borrowers’ data is protected.
The Bill had seven clauses that sought to amend the CBK Act to provide for licensing of digital credit service providers who are not regulated under any other law.
“As such the Central Bank of Kenya will be obligated to ensure that there is a fair and non-discriminatory marketplace for access to credit,” Gladys Wanga, Chairperson, Departmental Committee on Finance and National Planning said in relations to the Bill
Once registered, the CBK already said it will not cap interest rates charged by the digital lenders. However, they will be expected to price their loans appropriately and treat borrowers well.
“What we do and I have been saying on the banking side is ensuring the pricing is appropriate in many ways and I think you have already seen what we have done with the banks. We have talked about the pricing principles that we have, things related to how they should treat customers,” Dr Patrick Njoroge said in November.
Consequently, the Competition Authority of Kenya (CAK) requires digital lenders to reveal interest rates, late payment and rollover fees for their loans before disbursing credit to customers.
According to a CAK report, 77 per cent of mobile loan borrowers have been forced to pay penalties and were charged to roll over their debts.
Data from the CBK shows that borrowers borrowing digital loans from unregulated lenders surged from 200,000 in 2016 to more than two million in 2019.