Digital lenders now given six months to register with CBK

Digital lenders are now required to register within six months with the Central Bank of Kenya (CBK) under new rules that prohibit the firms from sharing borrowers’ information. The mobile lenders are also required them to seek regulatory approval on loan interest.

Yesterday, CBK gazetted the Digital Credit Providers regulations, 2022 that will require all digital lenders to comply with them before September. Henceforth, the lenders will apply to CBK for approval of interest rates on their loans, disclose all terms of their credit to borrowers and have also been prevented from sharing information of loan defaulters with third parties.

Digital lenders have been accused of breaching confidentiality of information on defaulters and concealing terms of their loans, opening an avenue for predatory lending.

“The Regulations are now operational, all previously unregulated DCPs are required to apply to CBK for a license within six months of the publication of the Regulations, i.e., by September 17, 2022, or cease operations,” CBK said yesterday.
Gazettement of the regulations comes after the signing into law of the Central Bank Act, 2021 in December, bringing digital lenders under the watch of the banking regulator for the first time.

CBK Governor Patrick Njoroge last week said the regulations will bring sanity into an industry that has for years been blamed for predatory lending and debt-shaming borrowers in a bid to recover defaulted loans.
Digital lenders have been accused of not disclosing the full terms of their credit leading to costly interest rates that rise up to 520 percent when annualised, triggering mounting defaults.

The lenders resort to sending messages to friends and relatives of loan defaulters to recover the loans.
Debt collection agents have also been accused of threatening to report defaulters to their employers as they seek to compel them to repay the loans. Borrowers share personal information, including their professions and monthly earnings, when registering with digital lenders.

Digital firms have in recent years flooded the local market, attracted by demand for quick credit that does not require collateral.
Borrowers get loans within minutes via their mobile phones, making digital loans a quick fix for daily bills.
CBK says that borrowers tapping the digital loans from the unregulated lenders grew to more than two million two years ago from an estimated 200,000 in 2016, highlighting their popularity.
The regulations will see digital lenders operate for the first time under similar regulations like banks and micro-financiers.

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