- The parliamentary committee on Finance and National Planning approved the Central Bank Amendment Bill 2021 and added a clause that gives the CBK powers to set the price of interest rates on digital loans.
Parliamentarians have given the Central Bank of Kenya (CBK) express powers to control the loan rates of digital mobile lenders under a proposed law that will see the regulator control their products, management and information sharing on borrowers. .
The parliamentary committee on Finance and National Planning approved the Central Bank Amendment Bill 2021 and added a clause that gives the CBK powers to set the price of interest rates on digital loans.
Now, the key goal of the government-backed Kenya Central Bank (Amendment) bill of 2021, which seeks to empower the banking regulator to oversee digital lenders for the first time, is to curb the high digital lending rates that have sunk many borrowers. in a debt trap, as well as predatory loans.
The bill initially was silent on loan rates, only stating that digital lenders should play by the same rules as commercial banks seeking the CBK’s go-ahead for new products and prices that include loan fees.
The commission’s report is now before Parliament for debate and approval before it becomes law.
“The committee has explicitly given CBK powers to determine the pricing parameters.
This will ensure that CBK does not necessarily set the loan rate, but rather provides parameters within which digital credit providers will set the cost of credit, ”said Kevin Mutiso, president of the Digital Lenders Association of Kenya (DLAK).
Dozens of unregulated microlenders have invested in the Kenyan credit market in response to growing demand for quick loans.
Its proliferation has burdened borrowers with high interest rates, which soar as high as 520 percent when annualized, leading to mounting defaults and increasing numbers of defaulters.
Because they have little or no access to credit, many Kenyans now find that they can obtain loans in minutes via their mobile phones.
The CBK says that borrowers turning to digital loans from unregulated lenders grew from 200,000 in 2016 to more than two million in 2019.
The bill also comes amid complaints that digital lenders do not provide complete information to borrowers on pricing, penalty for default, and recovery of unpaid loans.
Digital lenders have been accused of abusing personal information collected from defaulters to bombard family and friends with messages about default and asking third parties to enforce payment.
The push to control the activities of digital lenders comes more than a year after Kenya removed the legal cap on business loan rates.
The cap, which was introduced in September 2016, slowed private sector credit growth 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 subsequent credit crisis sparked an appetite for digital lending, attracting unregulated microlenders in response to growing demand for quick loans.
Market leader M-Shwari, Kenya’s first mobile-based savings and loan product introduced by Safaricom and NCBA in 2012, charges a 7.5% “facilitation fee” on credit regardless of its duration, which which raises its annualized lending rate to 395%.
Tala and Branch, the other major players in the mobile digital loan market, offer annualized interest rates of 152.4 percent and 132 percent, respectively.
In April, the CBK prohibited unregulated digital mobile lenders from submitting defaulters’ names to credit reference agencies (CRBs).
The committee removed requirements for the banking regulator to determine minimum liquidity and capital adequacy requirements for digital credit providers, similar to the conditions set to operate a bank in Kenya.
The committee rejected the proposal on capital and liquidity, saying that digital lenders do not accept deposits and therefore do not pose a danger to public funds.
The CBK had previously raised the alarm that credit-only mobile lending institutions are easily used to launder illicit cash.
Money laundering, which involves transferring and disguising illegally obtained money to make it appear legitimate, is used primarily by criminals and corrupt people to cleanse their wealth.
The bill requires companies to disclose to the CBK the source of the funds that the institutions are lending to curb money laundering and terrorist financing.