This archive report was first published on 8 July 2019.
Kenya's Central Bank has taken a significant step to regulate the digital lending space, introducing new rules that will ease the lives of millions of borrowers.
As of October 2019, digital lenders licensed by the Central Bank will be required to treat borrowers like normal bank loan customers. This means that mobile loan defaulters will only be blacklisted by the Credit Reference Bureau after six months of non-payment have elapsed.
The move comes after a study by the Central Bank revealed that as many as 2.7 million digital borrowers in Kenya were blacklisted due to minor defaults. The study found that Credit Reference Bureaus handled bank loans differently from online loans, resulting in most digital borrowers ending up on the CRB list of defaulters.
Online credit companies have long been accused of exploiting borrowers by charging high interest rates and lending to people who are not able to repay the loans. In March, parliamentarians directed the Central Bank to rein in on the mobile lenders.
Despite the formation of the Digital Lenders Association of Kenya, which aims to self-regulate the industry, Central Bank Governor Dr. Patrick Njoroge insists that online platforms must be regulated by an independent authority.
“There is no such place for self-regulation,” Dr. Njoroge said. “The danger relates to the conflict of interest; this is why you need to have regulation based on specific principles, most importantly the protection of Wanjiku.”
