Digital mobile money lenders will have up to 6 months to be licensed by the Central Bank of Kenya (CBK). This will happen if Parliament passes a Bill proposing that CBK control their products, management, and sharing of borrowers’ information.

The Central Bank of Kenya (Amendment) Bill, 2021, seeks to empower the banking regulator to supervise digital lenders, to curb the steep digital lending rates that have plunged many borrowers in a debt trap. The Bill also seeks push out rogue lenders amid concerns of unethical practices such as money laundering, illegal use of customer private data and shaming of borrowers who default on repayment.

The banking regulator will be expected to determine minimum liquidity and capital adequacy requirements for digital credit providers in line with conditions set for operating a bank in Kenya.

The digital lenders will play under the same rules as commercial banks, including having to seek CBK’s nod for new products and pricing that includes loans charges and capping on non-performing loans at no more than twice.

“Any person who before coming into force of this was in the business of offering credit facilities or loan services through a digital channel and is not regulated under any other law shall register with The Bank (CBK) within six months of coming into force of this Act,” says the Bill tabled in Parliament by Gladys Wanga in her capacity as chair of the Committee on Finance and National Planning.

The CBK had earlier raised the alarm of the credit-only mobile lending institutions being easily used to launder illicit cash.

The Bill demands that the firms disclose to the CBK the source of funds that the institutions are lending to curb money laundering and terrorism financing. Those in breach face a fine of Ksh. 5 million or a jail term of three years or both as regulators scramble to keep up with boom in lending by financial technology (fin-tech) firms, including US start-ups.

The cap, which was introduced in September 2016, slowed down private sector credit growth as commercial banks turned their backs on millions of low-income customers and SMEs deemed too risky to lend to. The subsequent credit crunch triggered an appetite for digital loans, attracting unregulated microlenders to Kenya’s credit market in response to the growth in demand for quick loans.

Market leader M-Shwari, Kenya’s first mobile-based savings and loans product introduced by Safaricom and NCBA in 2012, charges a facilitation fee of 7.5% on credit regardless of its duration, pushing its annualized loan rate to 395%.

Tala and Branch, the other top players in the mobile digital lending market, offer annualized interest rates of 152.4% and 132% respectively.

In April, the CBK barred unregulated digital mobile lenders from forwarding the names of loan defaulters to credit reference bureaus (CRBs).