CBK, Treasury seek law to tame runaway digital loans

The Central Bank of Kenya (CBK) and the Treasury are preparing a law that will for the first time cover digital mobile lenders in fresh efforts to curb their exorbitant monthly interest rates.

CBK Deputy Governor Sheila M’Mbijjewe Thursday said that the draft Bill on financial regulations targeted at digital lenders will be ready in a few weeks and they are aimed at curbing predatory lending.

Tens of unregulated microlenders have invaded Kenya’s credit market in response to the growth in demand for quick loans.

Their proliferation has saddled borrowers with high interest rates, which rise up to 520 percent when annualised, leading to mounting defaults and an ever ballooning number of defaulters who have been adversely listed with credit reference bureaus (CRBs).

“The government is quite clear on it that we will change the laws to enable us oversight these lenders. They cannot continue with the ways that they are currently operating,” said Ms M’Mbijjewe.

“We have a lot of predatory lending out here, which we want to regulate,” she said, adding that the aim of the proposed law is to ensure that digital lenders treat retail customers fairly. The push to control digital lenders comes two months after Kenya removed the cap on commercial lending rates. Introduced in September 2016, the cap reduced 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 as too risky to lend to.

The credit crunch that followed triggered an appetite for digital loans, leading tens of unregulated microlenders to invest in Kenya’s credit market in response to the growth in demand for quick loans.

Ms M’Mbijjewe said that a suicide incident reported to the regulator had highlighted the threat posed by digital lenders and increased the need for their regulation. “In November last year, a lady came to the Central Bank to explain to us that her husband had committed suicide after getting involved with one of these lenders,” she said. The current legal regime of the digital lenders, which is outside the direct remit of the Central Bank, allowed providers, both banks and others, to sidestep the rate cap.

Market leader M-Shwari, Kenya’s first savings and loans product introduced by Safaricom and Commercial Bank of Africa in 2012, charges a “facilitation fee” of 7.5 percent on credit regardless of its duration, pushing its annualised loan rate to 395 percent. Tala and Branch, other top players in the mobile digital lending market, offer annualised interest rates of 152.4 percent and 132 percent respectively.