The Member of Parliament (MPs) have given the Central Bank of Kenya (CBK) express powers to control lending rates of digital mobile lenders.
The MPs under a proposed Central Bank Amendment Bill 2021 have offered CBK regulatory powers to control mobile loaning apps products, management, and sharing of borrower information.
The Bill also comes amid complaints that digital lenders do not provide full information to borrowers on pricing, punishment for defaults, and recovery of unpaid loans.
Digital lenders have been accused of abusing personal information collected from defaulters to bombard relatives and friends with messages regarding the default and asking third parties to enforce repayment.
The push to control the activities of digital lenders comes more than a year after Kenya removed the legal cap on commercial lending rates.
The subsequent credit crunch triggered an appetite for digital loans, attracting unregulated microlenders in response to the growth in demand for quick loans.
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 price interest rates for digital loans.
Now, the key aim of the government-backed Central Bank of Kenya (Amendment) Bill, 2021, which seeks to empower the banking regulator to supervise digital lenders for the first time, is to curb the steep digital lending rates that have plunged many borrowers into a debt trap as well as predatory lending.
The Bill was initially silent on the lending rates, only stating that the digital lenders were to play under the same rules as commercial banks that seek the CBK’s nod for new products and pricing that includes loan charges.
The report of the committee is now before Parliament for debate and approval ahead of it becoming law.
“The committee has explicitly granted CBK powers to determine pricing parameters. This will ensure that CBK does not necessarily set the lending rate but rather provide parameters within which digital credit providers shall set the cost of credit,” Kevin Mutiso, chairman of Digital Lenders Association of Kenya (DLAK) said.
Tens of unregulated microlenders have invested in 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 annualized, leading to mounting defaults and an ever-ballooning number of defaulters.
From having little or no access to credit, many Kenyans now find they can get loans in minutes via their mobile phones.
The CBK says borrowers tapping digital loans from unregulated lenders grew from 200,000 in 2016 to more than two million in 2019.