Mobile lenders need to be regulated to avoid money laundering according to CBK

CBK Governor Dr. Patrick Njoroge
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In a presentation to Parliament, the Central Bank Governor Dr. Patrick Njoroge indicated that there was a need to regulate the online lending firms. This is in order to avoid a situation where the lenders are used as a channel to introduce illegally obtained cash into the financial system.

The CBK Governor singled out Tala, Branch and Okash as the one of the lenders which could easily be used to launder cash. Money laundering basically involves transferring and disguising illegally obtained cash to make it look legitimate, is mostly used by criminals and the corrupt to clean their wealth.

The main concern according to Dr. Patrick was the source of funds which are used to lend out to the public. The three lenders have in the recent past raised billions of shillings for lending to the public.

In the case of Branch, the lender raised Ksh. 17 billion ($170 million) in its Series C funding from Foundation Capital and Visa. Also joining this round of investment are existing investors Andreessen Horowitz, Trinity Ventures, Formation 8, the IFC, CreditEase, and Victory Park as well as new investors, Greenspring, Foxhaven, and B Capital. In January, Branch International issued their largest commercial paper issuance to date raising Ksh. 500 million. This was the third time the company had issued commercial paper, following a Ksh. 350 million issuance in 2018 and a Ksh. 200 million issuance in 2017. The three commercial paper issuances were arranged by the Centum-owned advisory firm, Barium Capital.

CBK is also concerned with customer data protection by credit-only lenders, the high interest rates or transaction fees that they charge on borrowers, multiple borrowing from different lenders, non-disclosure of pricing terms and their lack of dispute resolution mechanisms.

Dr Njoroge, had this to say, “We are aware of the dangers unregulated, credit-only organisations can pose to the entire financial sector.” He also added that, “We are playing with matches and we are in petrol stations where the danger is significant. A match is not that large but it can light up a petrol station.”

CBK licenses and regulates electronic retail payment services providers in addition to all deposit-taking financial institutions.

 

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