CBK to regulate mobile loan rates by amending law

By JOHN MUTUA
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• One of the main goals of the Central Bank of Kenya (Amendment) Bill 2020, which seeks to empower the banking regulator to oversee digital lenders for the first time, is to curb the high rates of digital lending that have plunged many borrowers into a debt trap while as well as predatory loans.
• Dozens of unregulated micro-lenders have invested in Kenya’s credit market in response to growing demand for quick loans.
• Digital lenders have been accused of misusing personal information collected from the defaulters’ cellphone contact list to bombard relatives and friends with messages about the default and ask third parties to demand repayment.

The Central Bank of Kenya (CBK) will regulate the monthly interest rates charged by digital mobile lenders and non-performing loans from borrowers if a bill is passed in Parliament.

Among other things, the banking regulator will need to approve increases in digital lenders’ rates and other lending fees as well as cap non-performing loans at no more than twice the defaulted credit.

One of the main goals of the Central Bank of Kenya (Amendment) Bill 2020, which seeks to empower the banking regulator to oversee digital lenders for the first time, is to curb the high rates of digital lending that have plunged many borrowers into a debt trap while as well as predatory loans.

“The main purpose of this bill is to amend the Central Bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” said an opinion on the bill.

“The Central Bank of Kenya will have an obligation to ensure that there is fair and non-discriminatory access to credit in the market. “

Digital lenders will play by the same rules as commercial banks, including having to seek CBK approval for new products and tariffs if the bill becomes law.

Dozens of unregulated micro-lenders have invested in 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 bill also comes amid complaints that digital lenders fail to provide borrowers with full information on prices, penalties for default and collection of unpaid loans.

Digital lenders have been accused of misusing personal information collected from the defaulters’ cellphone contact list to bombard relatives and friends with messages about the default and ask third parties to demand repayment.

The push to control the activities of digital lenders comes eight months after Kenya removed the legal cap on commercial lending rates.

The cap, which was introduced in September 2016, has slowed the growth of credit 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, attracting unregulated microlenders to Kenya’s credit market in response to growing demand for quick loans.

Market leader M-Shwari, Kenya’s first mobile savings and credit product introduced by Safaricom #ticker: SCOM and Commercial Bank of Africa #ticker: NCBA in 2012, charges a “facilitation fee” of 7.5 % on credit regardless of term, pushing its annualized lending rate to 395 percent.

Tala and Branch, other leading players in the mobile digital lending market, offer annualized interest rates of 152.4% and 132% respectively.

In April, the CBK banned unregulated digital mobile lenders from passing the names of defaulting debtors to CRBs.