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Digital mobile lenders were becoming nuisances due to their unethical practices such as calling borrowers every minute, money laundering, illegal mining of customer private data, high lending rates and shaming of borrowers who default on repayment.
For instance Tala and Branch offer annualised interest rates of 152.4 percent and 132 percent respectively.
As if that is not enough, digital mobile lenders do not provide full information to borrowers on pricing, punishment for defaults and recovery of unpaid loans.
The likes of Opesa, Tala, Branch are fond of threats and abuse of personal information collected from defaulters to bombard relatives and friends with messages regarding the default and asking third parties to enforce repayment.
Now this will be long gone with the introduction of Central Bank of Kenya (Amendment) Bill, 2021 which was introduced to parliament by Homa Bay Woman Representative Gladys Wanga who is the chairperson of Finance and National Planning committee in parliament.
Fintechs will now have six months to be licensed by the Central Bank of Kenya (CBK).
The bill further seeks to empower CBK to supervise digital lenders for the first time.
The banking regulator will be expected to determine minimum liquidity and capital adequacy requirements for digital credit providers akin to conditions set for operating a bank in Kenya.
The digital mobile lenders will now have offices and operate as commercial banks.
This new rule will see the fintechs seek the CBK’s nod for new products and pricing that includes loans charges and putting a ceiling on non-performing loans at not more than twice the defaulted amount if the Bill becomes law.
The regulator will have to vet the management of digital loan providers.
“Any person who before coming into force of this was in the business of offering credit facilities or loan services through a digital channel and is not regulated under any other law shall register with The Bank (CBK) within six months of coming into force of this Act,” says Gladys Wanga.
The CBK had accused the fintechs of money laundering especially by criminals and the corrupt to clean their wealth.
The Bill demands that the firms disclose to the CBK the source of funds that the institutions are lending to curb money laundering and terrorism financing. Those in breach face a fine of Sh5 million or a jail term of three years or both.
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