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Digital Lenders Given Six Months To Obtain New Licences

digital lenders
Central Bank of Kenya (CBK) Governor Patrick Njoroge. [Photo/Courtesy]

Digital lenders have up to six months to obtain new licenses from the Central Bank of Kenya (CBK) before they are permitted to operate in Kenya in accordance with the new legislation.

As the noose tightens around previously unregulated digital lenders, CBK governor Patrick Njoroge indicated on Tuesday that new regulations under a new law are anticipated to be gazetted this month.

Last December, President Uhuru Kenyatta signed legislation allowing the central bank to oversee digital lenders, giving the bank the authority to punish lenders who violate customer privacy.

“Regulations governing Digital Credit Providers will be gazetted later this month to pave way for the licensing and oversight of DCPs by CBK,” said Dr Njoroge.

Read: No More Debt-Shaming by Digital Lenders as Uhuru Signs CBK Amendment Bill into Law

“All previously unregulated DCPs will be required to apply to CBK for a license by September 2022 or cease operations.”

The Digital Credit Providers Regulations of 2021 gave the CBK the authority to revoke the licenses of companies that use name-and-shame tactics to collect money by sending information about loan defaulters to third parties.

“The bank may suspend or revoke a license by written notice to the holder of the license if the licensee (digital lender) is in breach of subsection (2A) or the conditions of the Data Protection Act or the Consumer Protection Act,” the law reads in part.

Lenders must now seek for licenses from the CBK, as opposed to merely registering to do business in the East African country earlier.

Read Also: Digital Lenders Cut Loans to Shield Themselves from Defaulters following CRB Directive

In recent years, digital enterprises have saturated the local market, drawn by the demand for rapid borrowing that does not require collateral. Borrowers receive loans via their mobile phones in minutes, making digital loans a convenient way to pay daily costs.

To manage credit risk, digital lenders use data analytics and loan payback history, among other techniques, in addition to social pressure.

“The law requires every person intending to undertake the business of a digital money lender to first obtain a license from CBK. This is to ensure discipline in the market,” Uhuru said.

Customer privacy was never guaranteed due to the lack of regulation, as these digital lenders shared user data with third parties at their discretion.

Customers who missed loan payments were also subjected to incessant calls from debt collectors, who utilized humiliation tactics such as calling friends and family to pressure defaulters to pay.

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Written by Eva Nyambura

Content creator at Kahawatungu.com | Passionate about telling the untold story. Lover of life, music and technology. Simplicity is KEY

Email: news@kahawatungu.com

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