The emergent technology in the financial sector, or Fintech, has made it possible for financial services and products, like digital credit providers commonly known as mobile loan apps, to be more accessible at small costs. Due to this, loans through mobile apps have skyrocketed in Kenya due to the ease of accessing credits for Kenyans who cannot access bank loans.
In a rising number of low-and-middle income households, digital credit is an increasingly prominent source of borrowing. Digital lenders can leverage non-traditional data (e.g., mobile phone usage data) instead of financial histories for credit assessment and deliver consumption credit via widely spread mobile money networks.
Therefore digital credit becomes particularly valuable for the considerable share of individuals in the country who live remotely or lack financial footprints. Congruently a few months since the Central Bank of Kenya released a list of the licenced digital credit providers among them, Ceres Tech Company Limited, Natal Tech Company Limited and Tenakata, this form of credit was already accessible but largly unregulated which influenced the decision of the CBK to establish the Central Bank of Kenya (Digital Credit Providers) Regulations 2022.
The Regulations were issued pursuant to Sections 57(1), 57(3) and 57(4) of the Central Bank of Kenya Act (the CBK Act). They provide for the licensing and oversight of previously unregulated Digital Credit Providers (DCPs). They seek to address concerns raised by the public given the recent significant growth of digital lending particularly through mobile phones. These concerns relate to the predatory practices of the previously unregulated digital credit providers, and in particular, their high cost, unethical debt collection practices through threats and harassment, and the abuse of personal information. The Regulations provide for inter alia the licensing, governance, and lending practices of DCPs. They also provide for consumer protection, credit information sharing pursuant to the Data Protection Act, and outline the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) obligations of DCPs.
Kenyans can now rest at ease while taking mobile loans because licenced DCPs are regulated and are required to obtain licences from the CBK before operating. Salient features of regulated DCPs include Governance of digital credit providers– DCP’s are required to practice sound corporate governance principles based on ethics, fairness, transparency and integrity while engaging their customers and to the Central Bank of Kenya. This addresses the issue of poor customer care as most unregulated DCP’s fail to address complaints by customers. Other features include customer protection from sharing their personal data, harassing them, or increasing service fees without customers’ notice.
Anti–Money Laundering and combating the financing of Terrorism- DCP’s are required to comply with the Proceeds of Crime and Anti-Money Laundering Act, 2009 and the Prevention of Terrorism Act, 2012 and their relevant regulations. DCP’s are required to furnish the Central Bank of Kenya with evidence and sources of funds when called upon in cases whereby funds are suspected to be proceeds of crime.
Apart from obtaining licenses to operate from the CBK, DCPs are also required to register with the office of the Data protection commission as data processors and to register with the Financial Reporting Centre.
The stylized portrayal of digital credit alludes that this form of credit represents both an opportunity and a risk. This is also reflected by heated public discussions and a variety of farreaching policy measures undertaken in that sector in recent years, including the introduction of the CBK regulations of 2022.
The regulations address majority of the risks. There is a general notion that this form of credit is suitable to overcome credit-constraints of marginalized groups. Moreover, digital credit could constitute a pathway to conventional credit, through the creation of financial footprints for the formerly excluded. Furthermore, DCPs create jobs for hundreds of Kenyan youths who have been employed as either credit officers for on boarding clients, or debt collection agents.
Therefore, the government should come up with policies that protect the licenced DCPs, which should then form an organization of licenced DCPs that will be the advocacy group and the umbrella body of the institutions licenced and regulated by the Central Bank of Kenya (CBK) with a current number of just 82 licenced DCPs in the country.
Companies looking to dive into fintech through digital lending are encouraged to apply for the licences in order to have a slice of the cake in such a promising lending market.
David Kipruto and Mukuura Vivian are Advocates of the High Court of Kenya and Fintech lawyers.
Our contacts David Kipruto Email: info@kdsadvocates.com Mukuura Vivian Email: info@kdsadvocates.com
