A first for mobile digital lenders after Branch International acquires majority stake at Century Limited

March 4, 2022 - 5 Minutes Read - By Abigael Ndanu

On February 9, Branch International Limited acquired a majority stake in Century Microfinance Bank Limited effective January 1, 2022. This follows CBK’s approval on December 30, 2021, under Section 19 (4) of the Microfinance Act and approval by the Cabinet Secretary for the National Treasury and Planning on January 7, 2022, pursuant to Section 19(3)(b) of the Microfinance Act.

(3) The provisions of subsections (1) and (2) shall not apply in the case of; (a) A wholly-owned subsidiary of a bank or a financial institution; (b) Any other company which the Minister may, on the recommendation of the Central Bank, specify.

(4) No person shall transfer, or cause to be transferred, more than ten per cent of the shares of an institution except with the prior approval of the Central Bank.

The story on how Branch International started is rather interesting. The founders, Daniel Juan and Matt, started the mobile lending application seven years ago. The two envisioned the application would provide microloans to its customers via a mobile app using cutting-edge data science to screen customer information such as SMS, contact data, and Facebook.

Eventually, after the hard toiling, Branch delivers world-class financial services to the mobile generation. With offices in the United States, Nigeria, Kenya, and India, Branch is a for-profit socially conscious company that uses the power of data science to reduce the cost of delivering financial services in emerging markets. Matt and Daniel believe that everyone, everywhere deserves fair financial access. The rapid spread of smartphones presents an opportunity for the world’s emerging middle class to access banking options and achieve financial flexibility. 

Branch International Limited has become the first mobile digital lender to acquire a majority stake in a banking institution more than a month since the law regulating digital lenders came into force thus will be subject to CBK regulations.

The Central Bank of Kenya announced that Branch, the digital credit provider, had acquired 84.89% stake in the microfinance lender for an undisclosed fee. The National Treasury Cabinet Secretary Ukur Yatani also gave a nod on the matter.

Further, the institution’s primary focus is provision of financial services to smallholder farmers and small and medium-sized entrepreneurs who are Kenyans. The first microfinance bank became operational more than a decade ago in turn the Kenyan financial sector landscape has transformed significantly.

Available data shows that more than 3.2 million Kenyans have been blacklisted by the country’s credit reference bureaus (CRBs) with the bulk of them being linked to consumers of digital loans. Default rates jumped significantly in the wake of the coronavirus outbreak that had hit consumer demand and forced businesses to shed jobs and cut back their operations

Just like many other digital lenders in Kenya; Branch International was compelled to waive the late repayment fees for borrowers to cushion them from the economic effects of the Covid-19 pandemic even as it emerged that the inflated charges levied by digital credit apps are pushing many borrowers into a debt trap.

The pardon was meant to cushion the customers who at that time were under distress, following the slowdown in the economy after disruptions to their day to day operations that could have had an effect on regular income flow.

The major concern during the fireside chat was data protection concerns.  Usually, loan apps collect borrowers’ phone data, including contacts, and demand access to messages to check the history of mobile money transactions — for credit scoring and as conditions for disbursing loans. Rogue lenders then use some of the contact information collected to recover the loans disbursed in cases where borrowers default. Unfortunately, digital lenders resort to debt-shaming tactics, like calling friends and family, to compel their borrowers to repay the loans.

The Central Bank of Kenya amendment 2021 bill also gives the regulator the power to cap interest rates and to suspend or revoke the licences of digital lenders that breach the conditions of the Data Protection Act or the Consumer Protection Act. The founders assured that the narrative would certainly not be the same with their company.

From a legal standpoint, Kenya’s Data Protection Act requires firms to disclose to customers the reasons for collecting their data. It also ensures that borrowers’ confidential information is safe from infringement by unauthorised parties. This comes as consumer lobbies accuse loan apps of sharing customer information with data and marketing companies.

All digital lenders will also be required to reveal all the information concerning their products, and this includes details on pricing, penalties for defaulters and means of debt recovery. This is in line with the country’s Consumer Protection Act which requires sellers to disclose to consumers all the terms and conditions pertaining to the purchase of goods or services. Almost all lending apps were found to use debt-shaming tactics to recover debt in Kenya.

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