Kenya’s financial sector has grown by leaps and bounds. The banking sector has adapted to the times and incorporated technology into its activities. Telegraphic money transfer services have become every Kenyan’s go-to payment model, and digital credit lenders have also played a fundamental role.

In recent years, the burgeoning Buy Now, Pay Later (BNPL) sector has spearheaded a financial revolution. This innovative model allows consumers to access essential goods and services, spreading the cost over manageable instalments. With this arrangement, previously unbanked and underbanked populations are propelled to financial inclusion, allowing access to a better quality of life.

In the face of this transformation, a critical piece of the puzzle remains missing—a robust regulatory framework for the BNPL sector. While BNPL thrives on its agility, the absence of regulations creates an imbalance, threatening the very sector it seeks to empower. More importantly, and as an essential reminder of the calls for regulation, regulation should support and not sputter the burgeoning sector.

Impact of BNPL on the economy

The impact of BNPL on Kenya’s economic landscape cannot be understated. Consider the millions of Kenyans who previously lacked access to credit facilities.  Imagine a farmer needing a new irrigation pump to maximise crop yield or a young professional yearning for a smartphone to elevate their job prospects. BNPL bridges this gap, allowing these individuals to invest in their future without the burden of a hefty upfront cost. Studies by the GSMA Association reveal that two million Kenyans gained access to financial products through their mobile phones in 2021 alone, a significant portion likely facilitated by BNPL services.

The BNPL sector’s influence extends beyond basic necessities. It has breathed life into specific industries. Take the Kenyan mobile phone market, for instance. According to a 2023 report by Price.co.ke, an astounding number of Kenyans – an estimated 70% – rely on BNPL options to acquire smartphones. This not only fuels digital inclusion but also empowers entrepreneurs and students, fostering a more connected and knowledge-based society.

Similarly, the motorcycle industry has witnessed a surge thanks to BNPL. Motorcycles are not just a leisure choice; they are vital tools for transportation and income generation, particularly in rural areas. A 2022 report by the Kenya National Bureau of Statistics indicates that motorcycle ownership has grown by over 40% in the past five years, with BNPL playing a key role in facilitating these purchases. This empowers individuals to become delivery drivers, boda boda riders (motorcycle taxis), or small-scale business owners, ultimately boosting the national economy.

Regulatory gaps as a hindrance

However, the current lack of regulations poses a significant threat to the long-term viability of the BNPL sector.  Unregulated lending practices could lead to irresponsible borrowing and over-indebtedness, especially among vulnerable populations. Additionally, the absence of consumer protection mechanisms leaves users exposed to predatory practices and hidden fees. This could not only tarnish the reputation of BNPL providers but also create a culture of mistrust that could hinder further financial inclusion efforts.

The United Arab Emirates (UAE) offers a compelling example of how a well-defined regulatory framework can nurture the BNPL sector.  In 2020, the UAE Central Bank released comprehensive guidelines for BNPL providers, mandating responsible lending practices, transparent fee structures, and robust customer grievance redressal mechanisms. This has fostered a thriving BNPL ecosystem while safeguarding consumer interests.

Lessons for Kenya

Kenya can learn valuable lessons from the UAE’s experience.  A regulatory framework for BNPL in Kenya should prioritise the following:

• Consumer protection: Clear guidelines are needed to ensure transparency in fees, interest rates, and late payment penalties. A robust dispute resolution mechanism should also be established for addressing consumer grievances efficiently.
• Responsible lending: Regulations should mandate responsible lending practices, including creditworthiness checks and limitations on loan amounts to prevent over-indebtedness.
• Data privacy: Data security and privacy are paramount. Regulations should ensure that user data collected by BNPL providers is protected and used ethically.

The Kenyan government, in collaboration with the BNPL industry, can create a win-win situation. By implementing a forward-thinking regulatory framework, they can foster a responsible and sustainable BNPL ecosystem that continues to drive financial inclusion while safeguarding consumer interests. This, in turn, will solidify Kenya’s position as a financial innovation leader in Africa.

The BNPL revolution in Kenya is a story of empowerment and progress. As such, caution must be taken so that we do not stifle it with either a regulatory vacuum or a non-supportive regulatory approach. Instead, the approach should target maximising its potential by creating a framework that allows this innovative model to flourish, for the benefit of millions of Kenyans.