Digital lenders open to CBK scrutiny

By Steve Umidha

For the past few years, Kenya’s fintech ecosystem has remained the apple of borrowers’ eyes, pouring millions of shillings in short-term loans and making it the hottest and probably the most insane investment activity in recent history of the country’s financial sector.

This burgeoning space – initially envisioned to advance access to loans to the un-banked, is now staring at a momentous threat from what is believed are rogue digital lenders who continue to entice unsuspecting and susceptible consumers to their traps.

Often, these unregulated micro lenders who charge inflated interest rates go an extra mile in their debt collection practices with public shaming, endless harassment to the borrower, being some of the uncouth techniques in use.

As a result, Kenya’s financial regulator, the Central Bank of Kenya (CBK) has now vowed to weigh in and while leading mobile loan apps have welcomed the move, they want it done solemnly without eroding the industry’s status and potentially locking them out of business.

“The professionalization of the industry is necessary and inevitable. The crucial thing is to do it in a smart way to avoid harming the Kenyan economy,” says Zenka Finance Chief executive Duncun Motanya, who is proposing that a minimum capital requirement be set up through a regulatory framework as well as the creation of an official lenders’ registry, list of licensed Digital MFI lenders complying with regulation and ethical standards if the sector is to achieve customers’ financial safety.

Barely a month ago, the Central Bank of Kenya’s Deputy Governor Sheila M’Mbijjewe announced that the institution together with the Treasury were preparing a law that is expected to cover digital mobile lenders in an effort aimed at restraining their exorbitant monthly interest rates – which rise up to 500 per cent or more when annualized, leading to mounting number of defaulters now listed with credit reference bureaus (CRBs).

This is after the CBK revealed that it had received reports of a middle-aged man who took his life following aggravation and public shaming by undisclosed digital lending application.

The Country Manager of Tala, Ivan Mbowa, another digital lender, says serious engagements with the CBK, Treasury and other stakeholders have been ongoing, albeit behind the scenes, and whose outcome he says will help restore the sector’s image

“It is a concern especially to some of the companies running legitimate businesses because this could hurt the industry’s reputation in the long run,” says Mr. Mbowa, who believes that additional scrutiny of the industry being mooted by CBK will go a long way.

Financial experts agree, saying hesitancy by regulators could further expose borrowers’ financial well-being.

“I think it is a welcome move, because activities of some of the digital lenders warrant scrutiny by relevant regulatory bodies, of cause we have legit ones, and like with any industry you cannot miss a few cheeky characters out to make a killing from their dubious undertakings,” says Peter Macharia, an independent financial expert, who further warns that inaction to the mushrooming concerns could expose many industry players and borrowers alike.

As the digital lending industry expanded, experts have continuously pointed out that customers were usually confused about loan terms and conditions, hindering fintech firms’ potential to advance financial inclusion.

This attracted the attention of Central Bank of Kenya governor Patrick Njoroge, who criticized such platforms, saying in May of last year that they were “displaying shylock-like behavior while hiding behind nice-looking applications.”

Indeed, mobile loan apps lobby, Digital Lenders Association of Kenya (DLAK) last week unveiled the first-ever MoneyMarch: a month-long campaign that will bring providers and consumers in the same table in a conversation around financial health and wellness.

It now remains to be seen the kind of regulatory settings the regulator will adopt and its impact on the sector and whether industry players will be reading from the same script, with the ultimate goal being the safety of the defenseless mwananchi.