CBK clears 51 digital lenders as 429 queue

Central Bank of Kenya (CBK) has licensed 19 new Digital Credit Providers (DCPs), acc the total number to 51. This move is part of an ongoing process, with other applicants at various stages of the licensing process.

However, this means majority of borrowers may still be exploited by the unregistered predatory digital lenders, despite the Central Bank of Kenya’s push to regulate the sector, now that more than 430 pending applications are unlicensed and still in business.

The country’s apex bank introduced the Central Bank of Kenya (Amendment) Act, 2021, which came into effect on December 23, 2021.

The Act aims to regulate the digital sector, improve business models, protect consumers, foster economic growth, promote financial inclusion, and spur technology investment.

The decision to license and oversee DCPs was driven by public concerns about the predatory practices of unregulated DCPs, CBK said. These concerns included high costs, unethical debt collection practices, and personal information abuse.

Since March 2022, the CBK has received 480 applications and has been actively working with applicants to review their applications.

CBK says the new applicants are “at different stages of the process, largely awaiting the submission of requisite files”.  The review process involves engaging with other regulators and agencies, including the Office of the Data Protection Commissioner, to ensure adherence to relevant laws and safeguard customer interests.

Business models

Central Bank said the focus of the engagements has been inter alia on business models, consumer protection and fitness and propriety of proposed shareholders, directors, and management.

“This is to ensure adherence to the relevant laws and importantly that the interests of customers are safeguarded. We acknowledge the efforts of the applicants and the support of other regulators and agencies in this process,” the statement noted.

Before the Act, digital credit providers caused significant distress among Kenyans due to exorbitant interest rates and challenging loan repayment terms.

Unethical practices such as debt shaming, misuse of borrowers’ personal data, and potential privacy breaches led to reputational damage and identity theft risks.

These challenges saw the Senate Finance Committee seek answers from CBK on whether it had put up firewalls to cushion users from predatory lending and whether the regulator had reined in on entities abusing the law. This after it emerged that most of the lenders were unregulated exposing borrowers to exploitation.

Senate’s inquiry was triggered by petitions on four micro-lending entities imposing huge interests against the provisions of the Digital Credit Providers Regulations of 2022. The new Act has brought much-needed regulation to this sector.

Digital lenders, known for higher rates than traditional banks, are expected to adjust their pricing models under these regulations.

Stopping harassment

While these measures aim to curb unethical practices, their effectiveness in completely stopping harassment by digital lenders is yet to be widely felt. With the new regulations in place, the landscape of digital lending in Kenya is set to change, promising a more secure and fair environment for borrowers.

 The new firms include Autocheck, Azura, Chapeo, Chime, Creditarea, Decimal, Dexintec, Factorhouse, Fezotech and Fortune.

Others are Lipa Later, Lobelitec, Maralal Ledger, Marble Capital, MKM Capital, Pi Capital, Senti Capital, Ubapesa and Zillions Credit.