CBK and Treasury call for law to tame leaked digital loans

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Capital markets

CBK and Treasury call for law to tame leaked digital loans


Central Bank of Kenya. PHOTO FILE | NMG

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  • The Central Bank of Kenya (CBK) and the Treasury are preparing a law that will cover digital mobile lenders for the first time in new efforts to lower their sky-high monthly interest rates.
  • CBK Deputy Governor Sheila M’Mbijjewe said on Thursday that the digital lender financial regulation bill will be ready in a few weeks and aims to tackle predatory lending.
  • Dozens of unregulated micro-lenders have swarmed Kenya’s credit market in response to growing demand for quick loans.

The Central Bank of Kenya (CBK) and the Treasury are preparing a law that will cover digital mobile lenders for the first time in new efforts to lower their sky-high monthly interest rates.

CBK Deputy Governor Sheila M’Mbijjewe said on Thursday that the digital lender financial regulation bill will be ready in a few weeks and aims to tackle predatory lending.

Dozens of unregulated micro-lenders have swarmed Kenya’s credit market in response to growing demand for quick loans.

Their proliferation has imposed high interest rates on borrowers, which climb to 520% ​​when annualized, resulting in growing defaults and an ever-increasing number of defaults that have been unfavorably listed with credit reference bureaus ( CRB).

“The government is pretty clear that we are going to change the laws to allow us to monitor these lenders. They cannot continue as they currently operate, ”Ms. M’Mbijjewe said.

“We have a lot of predatory lending here that we want to regulate,” she said, adding that the goal of the proposed law is to ensure that digital lenders treat retail customers fairly. The push to control digital lenders comes two months after Kenya lifted the cap on commercial lending rates. Introduced in September 2016, the cap reduced credit growth to the private sector as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed too risky to lend.

The ensuing credit crunch sparked an appetite for digital lending, leading dozens of unregulated microlenders to invest in Kenya’s credit market in response to growing demand for quick loans.

Ms M’Mbijjewe said a suicide incident reported to the regulator highlighted the threat posed by digital lenders and heightened the need for their regulation. “In November last year, a lady came to the Central Bank to tell us that her husband had committed suicide after getting involved with one of these lenders,” she said. The current legal regime for digital lenders, which does not fall under the direct jurisdiction of the Central Bank, has allowed vendors, banks and others to bypass the rate cap.

Market leader M-Shwari, Kenya’s first savings and loan product introduced by Safaricom and Commercial Bank of Africa in 2012, charges 7.5% “facilitation fee” on credit regardless of term , which brings its annualized lending rate to 395%. Tala and Branch, other leading players in the mobile digital lending market, offer annualized interest rates of 152.4% and 132% respectively.

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