Digital lenders dealt a blow in new CBK regulations

Tuesday, March 22nd, 2022 10:06 | By
CBK Governor Dr Patrick Njoroge
CBK Governor Dr Patrick Njoroge. PHOTO/COURTESY
CBK Governor Dr Patrick Njoroge

The Central Bank of Kenya (CBK) has gazetted new rules for Digital Credit Providers (DCPs) popularly known as Digital Lenders, a move that could see many exit the Kenyan market.

The rules stipulated in the Digital Credit Providers Regulations 2022 are aimed at curbing punitive interest rates and unorthodox means used by the lenders to collect debts.

"The regulations provide for inter alia the licensing, governance, and lending practices of DCPs. They also provide for consumer protection, credit information sharing, and outline the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) obligations of DCPs," CBK Governor Dr Patrick Njoroge said.

According to the rules which will take effect on September 17, 2022, the lenders will not be allowed to access the customer’s phone book or contacts list and other phone records. In the current setup, most lenders have been using such information to coerce borrowers into paying loans, in case of default.

The regulations will also bar the DCPs from sharing customers' information with third parties or posting customers’ personal or sensitive information online for purposes of debt shaming.

Lenders who will not have applied for licencing by September will be pushed out of the market, as per the gazette notice issued on March 18, 2022.

“The Regulations are now operational, all previously unregulated DCPs are required to apply to CBK for a license within six months of the publication of the Regulations, i.e., by September 17, 2022, or cease operations,” CBK said.

DCPs will also not be allowed to list customers with the Credit Reference Bureaus (CRBs) in case the debt defaulted is less than Ksh1,000.

Any entity wishing to be a digital lender will also be required to reveal the source of their funding and prove that the money is not proceeds of money laundering, terrorism or other crime-related activities.

They have also been barred from using threats, violence or other means to harm the debtors, their reputation or property if they do not settle their loans.

DCPs shall not invite or collect deposits in any form, including the taking of cash collateral as security for loans.

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