LEGAL ALERT: Digital lenders on the cusp of coming under CBK’s radar with the proposed amendments to the CBK Act.

LEGAL ALERT: Digital lenders on the cusp of coming under CBK’s radar with the proposed amendments to the CBK Act.

LEGAL ALERT: Digital lenders on the cusp of coming under CBK’s radar with the proposed amendments to the CBK Act. 150 150 Admin_salclaw

The Central Bank of Kenya (Amendment) Bill 2020 is currently before the National Assembly’s finance committee, with the public participation stage having ended on 11th August 2020. After that, the finance committee will report to the house sitting in plenary on their consideration of the Bill before members of Parliament brace themselves for debating and voting on the same. The Bill aims to arrest the excessive digital lending rates that have entrapped many borrowers and to tame predatory lending. Further, the Bill aims to bring some sanity to the digital lending marketplace as there have been several complaints by members of the public over the unorthodox and humiliating tactics lenders use to pursue debt payment. For example, some lenders contact close family members of the debtors incessantly for them to appeal to the debtors to settle their debt.

A survey conducted by the Star newspaper in 2019 regarding interests charged by some digital lenders in Kenya revealed that a majority of them were charging interest rates as high as 15 percent per month, which translates to an Annual Pricing Rate of 180 percent. This figure is 15 times more than what commercial Banks charge for unsecured loans, with the present average rate being 11.95 percent, according to CBK.

If the Bill is passed, digital lenders will require CBK’s approval to vary their interest rates and to introduce new loan products. While digital lenders do not oppose the idea of regulation, some of them are however, against strict supervision by the CBK as they are not deposit-taking institutions like banks.  Instead, digital lenders consider regulation under the Microfinance Act as a more rational and suitable approach as this law caters for non-deposit taking microfinance institutions.  They also hold that regulation under the Microfinance Act will ensure that digital lenders maintain flexibility in the innovation of loan products as CBK approval will not be required.

 

Written by Edward O. Sudi

edwardsudi@salclaw.co.ke