Collaboration will unlock overlap in digital lending
Kenya is eyeing to introduce a regulatory framework for digital lending business, a key development that will shape future of innovation and financial inclusion in the country.
It is suggested that digital financial services providers will come under the radar of Central Bank of Kenya (CBK), supervising and regulating operations, products and overall financial services, if the Central Bank of Kenya (Amendment) Bill, 2020 sails through.
While the Bill seeks to empower CBK oversight over all financial products offered through mobile phones, there are concerns that it will occasionally find itself stepping into mandates of other regulatory bodies within the financial sector.
CBK has superseding powers presently under Microfinance Act and the Banking Act to regulate and supervise conduct and delivery of service and products of all the deposit-taking institutions and non-financial institutions.
Perhaps the gap the Bill seeks to regulate is the conduct of non-deposits taking institutions.
The CBK, being one of three Financial Sector regulators (besides Insurance Regulatory Authority (IRA) and Capital Markets Authority (CMA)), performs regulatory oversight over certain conducts of financial and non-financial institutions under specific laws such as the Credit Reference Bureau Regulations and The National Payment Systems Act.
Giving it additional authorities especially over regulation of digital financial products may in turn creep into the scope of these two supervisory authorities, which already have a go-ahead to regulate and supervise some products.
It presents a high risk of regulators engaging in competition over same regulatory matter, opening up conflict of interest.
This may build up into negative regulatory competition between overlapping authorities, leading to loss of time in tussle over which authority is to handle a particular dispute, in effect causing delays in delivering justice and progress.
Such competition may also lead to huge costs of implementation from duplicated roles. Unending wrangles over jurisdiction may reverse or slow down anticipated gains.
Assigning all regulatory and supervisory powers to CBK over digital lenders may be detrimental to the final consumer, as issues such as data privacy protection maybe overlooked in face of long-standing disputes.
Digital lending consumers are susceptible to any delay in accessing credit to cope with emergencies.
For instance, the current economic situation demands for continuous access to finance and small credit amenities averaging Sh5, 000 that traders and consumers can easily cope with quick repayment.
The amount may seem little, but it can save a life by allowing borrowers buy basic needs and help traders to stock up.
Assuming oversight of digital financial services, CBK would also have to expand its technical resources and personnel to supervise the sector.
This is to avoid risk of overregulating the industry and treating it as traditional banks.
With understanding of increased positive impact of digital lending platforms in Kenya, more grounds arise why the amendment Bill may be termed as detrimental to country’s economic growth.
It is vital, therefore, that the Treasury and CBK work together with other regulators to augment consumer protection, market fairness and ensure sufficient privacy and data protection.
Of importance is ensuring there is clarity over which institutions for which amendments in the Bill are sought . — The writer is a financial and risk management consultant at Marlite Consultants.