This archive report was first published on 11 July 2019.
On July 11, 2019, Central Bank of Kenya governor Patrick Njoroge sounded the alarm over mobile-based online lending firms, warning that they pose a significant risk of money laundering.
The CBK boss expressed his concerns during a presentation to parliamentarians, singling out Tala, Branch, and Okash as credit-only mobile lending institutions that could be easily used to launder illicit cash.
According to Dr. Njoroge, the key concern for regulators is the source of funds that these institutions are lending to the public. He noted that there is a huge lacuna in the current regulatory framework, as there is no specific law that is targeted at these credit-only institutions.
"There are gaps because we have laws for commercial banks and not credit-only institutions that use individual resources for lending. In fact, these institutions are nothing but shylocks," Dr. Njoroge told the Senate Committee on ICT.
The three digital lenders have in recent years raised billions of shillings for onward lending to cash-hungry Kenyans. For instance, Branch International, a San Francisco-based mobile loans lender, inked a $170 million loan and equity deal with Visa in April, which would expand its loan book and spread its services.
Dr. Njoroge emphasized that the regulator is aware of the dangers unregulated, credit-only organisations can pose to the entire financial sector. He noted that the digital lenders are currently estimated to constitute less than one percent of the total financial services industry.
The CBK governor also expressed concerns over customer data protection by credit-only lenders, high interest rates or transaction fees that they charge on borrowers, multiple borrowing from different lenders, non-disclosure of pricing terms, and their lack of dispute resolution mechanisms.
