The future of Digital Credit Providers under new regulations to protect consumers

September 23, 2022 - 5 minutes read

Kenya has been a home for many digital lending apps, which are popular for their unsecured and instant loans disbursed through mobile phones.

Unlike banks and Saccos where one is required to have a guarantor, these digital credit providers (DCPs) do not make it a requirement. Kenyans have embraced these apps since they are able to access emergency loans at their convenience.

 However, a section of Kenyans using these apps for quick loans have faulted how these creditors operate with some being accused of exploitative interest rates and debt-shaming recovery tactics.

What would the new regulations by the Central Bank of Kenya (CBK) and revoking of licenses mean to a section of Digital Credit Providers in Kenya especially the ones owned by foreign investors?

Former President Uhuru Kenyatta approved the Central Bank Amendment Bill, 2021, granting CBK powers to regulate non-deposit-taking credit providers who have remained unregulated for quite a long time.

The CBK, which is the regulator, has the mandate to revoke permits of digital lenders who breach the confidentiality of personal information to pursue defaulting borrowers and those charging extremely high rates on loans.

The reason why the regulator wanted the companies to disclose the source of their funds was to ensure that they are not engaging in financial crimes such as money laundering.

“A digital credit provider shall provide to the Bank (CBK) the evidence and sources of funds invested or proposed to be invested in the digital credit business and demonstrate that the funds are not proceeds of crime,” read the Digital Credit Providers (DCP) regulations.

Some of the provisions of CBK (Digital Credit Providers) regulations, 2021

Licensing

To qualify for a digital credit license, an applicant must be a company incorporated under the Companies Act, 2015, and ensure that its significant shareholders, directors, and senior officers meet the fit and proper criteria set out in the Regulations.

Confidentiality

A digital credit provider shall put in place appropriate policies, procedures and systems to ensure the confidentiality of customer information and transactions.

Customer’s consent

A digital credit provider shall ensure that the customer’s consent is obtained before the submission or sharing of credit information with a Credit Reference Bureau (CRB).

On Monday, September 19, the CBK approved only 10 Digital Credit Providers out of the 288 applications received. This comes after it announced that all unregulated Digital Credit Providers apply for licenses by September 17, 2022.

The CBK further announced that the process was still ongoing.

“Other applicants are at different stages in this process, largely awaiting the submission of requisite documentation. This means that the list might go higher than 10 companies and there is a high chance that the majority of them could get rejected,” the statement from CBK read.

The 10 approved DCPs include Ceres Tech Limited, Getcash capital, Jijenge credit, Giando Africa, Kweli smart solutions and Mwanzo Credi limilted. Others were Sokohela limited, Sevi Innovation, Rewot Ciro and MyWagepay limited.

Further, the CBK urged the companies to finalise their applications. As directed, they were urged to disclose their sources of funds and provide evidence of the same after a law meant to regulate the sector came into effect.

“We urge these applicants to submit the pending documentation expeditiously to enable the completion of the review of their applications. All other unregulated DCPs that did not apply for licensing must cease and desist from conducting digital credit business,” the read statement further.

In a statement on Monday, Tala, which was not licensed by CBK as of September 19, reassured its stakeholders that they submitted their applications and were following on the same.

“We would like to reassure our stakeholders, including our customers and employees, that Tala submitted its application for the requisite license in advance of the CBK’s deadline of September 17, 2022, and we are working with the CBK with regards to our application,” the statement read.

“In accordance with the provisions of The CBK Amendment Act, 2021, and the CBK (Digital Credit Providers) Regulations, 2022, Tala shall continue to operate as a digital credit provider pending issuance of our licence by the CBK”.

Tala hoped that the CBK would continue to share details of the licenced DCPs every week until the process is complete.

These new regulations and strict measures will help curb complaints by a section of Kenyans who use the online platforms to get quick loans and have in one way or the other felt harassed by some of the Digital Credit providers in the Country.

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