Central bank gains power to regulate digital lenders

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The National Assembly’s Finance and Planning Committee has made new recommendations to the Central Bank of Kenya (CBK) (Amendment) Bill 2021 on the controversial issue of credit pricing by digital lenders.

MEPs recommended that the CBK determine and publish the digital credit pricing framework.

The committee proposed that the CBK be empowered to regulate digital lenders that are not regulated by any other agency or law such as the Capital Markets Authority (CMA) or laws such as banking and insurance laws.

Homa Bay Women’s Representative Gladys Wanga addresses MPs on Friday, July 17, 2020.

Notably, the House committee recommended that the CBK regulate the licensing of digital lenders and the general conduct of their business, which most Kenyans called punitive.

In addition, the committee led by Gladys Wanga rejected proposals to grant the CBK the power to set capital adequacy requirements for digital lenders.

The committee felt that the lenders were not receiving deposits and that forcing the proposal on them would be prudent.

In their recommendations, MEPs said it was necessary for the CBK, the Communications Authority and the Office of the Data Protection Commissioner to work together to ensure the improvement and protection of data privacy.

The Central Bank of Kenya (Amendment) Bill 2020 seeks to regulate the rates of mobile lending which has seen many Kenyans take on huge debt.

Data from the Metropol Credit Reference Bureau (CRB) revealed that 14,035,718 Kenyans had been blacklisted as of January 2021.

In addition, the bill seeks to eliminate unscrupulous lenders who engage in unethical practices such as money laundering, illegal acquisition of private customer data and shaming defaulting borrowers.

This is part of a series of measures taken by the CBK to protect Kenyans from digital money lenders. Digital lending apps, which are known for their ruthless credit collection strategies, had to count losses after the CBK banned them from listing defaults on the Credit Reference Bureau (CRB) in February 2021.

Lenders were cut from CRB in October 2020, a move that led to a percentage decrease in the amount they were lending at sky-high interest rates.

The regulator rescinded digital lenders’ permission to share CRB data that barred 337 unsupervised mobile lenders from submitting the names of defaulting debtors to the bureau.

It was a failure because it canceled borrower profiles to make informed decisions. They found themselves without recourse against defaulters, which resulted in the reduction.

The CBK has proposed a number of far-reaching reforms that will allow it to regulate and deregister rogue mobile lenders who have infiltrated Kenya’s money lending market.

Mobile banking in Kenya

Mobile banking in Kenya

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