A smartphone user in Kenya. Many Kenyans use digital lending services to access loans, despite numerous pitfalls.
A smartphone user in Kenya. Many Kenyans use digital lending services to access loans, despite numerous pitfalls.

A bill introduced in Parliament aiming to rein in predatory lending by digital lenders has been cleared by the House.

The Central Bank of Kenya (CBK) Amendment Bill of 2020 was introduced by Nominated MP Gideon Keter and proposes a raft of regulatory changes to tame rogue mobile loan providers.

Most notably, the bill grants the CBK supervisory and licensing powers over digital lenders in the country. The proliferation of digital lenders in recent years has been the subject of heated debate, thanks to many of the services’ predatory tactics and high interest rates (up to 520 per cent when annualized) which have seen the number of loan accounts negatively listed with CRBs in Kenya hitting 14 million according to the latest data from Metropol, one of three licensed CRBs.

Worryingly, many young Kenyans have been listed with CRBs for loans of Ksh1,000 and less, hurting their financial prospects.

The services have also been criticized for exploitative lending, and unethical practices which includes debt-shaming as a means of collection. Some of the popular lending apps deal with defaulters by calling and texting contacts in their phone books to shame them into paying the debts.

A smartphone user in Kenya.
A smartphone user in Kenya.

“The principal object of this bill is to amend the Central Bank of Kenya Act in order to ensure the Central Bank of Kenya regulates the conduct of providers of digital financial products and services and financial products and services.

“The current position is that there is no legal framework governing digital borrowing platforms and other financial products and services. As such, the Central Bank of Kenya will have an obligation of ensuring that there is a fair and non-discriminatory marketplace for access to credit,” a statement on the bill read in part.

READ ALSO>>>>>DEBUNKED: 14 Million Kenyans Not Blacklisted by CRBs

After receiving a greenlight from lawmakers on Thursday, February 28, the bill now before the National Assembly committee on Finance and National Planning.

Kenyans and other stakeholders in the sector will be offered a chance to offer their views on the bill before Parliament debates and votes on it.

Local and foreign investors, including figures with prominent Silicon Valley ties, have pumped billions into the country’s lucrative mobile lending market.

The ease of sending and receiving funds via mobile money in Kenya, as well as the country’s relatively high internet penetration rate have contributed to their rise. These factors, combined with Kenya’s youth unemployment rate (39% according to 2019 Census data) has created a monster that has left financial services regulators scratching their heads.

READ>>>>>CRB Listing Set to Resume as Bad Loans Hit Ksh403 Billion

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