This archive report was first published on 11 July 2019.
On July 10, 2019, Central Bank of Kenya (CBK) Governor Patrick Njoroge addressed the Senate Committee on ICT, raising concerns about the mobile money lending business in Kenya.
According to Njoroge, mobile lenders do not use customer deposits for business, unlike traditional banks. This, he said, creates a 'huge lacuna' in regulation, as there are no specific laws targeting credit-only institutions that use individual resources for lending.
"There is a huge lacuna because there is no specific law that is targeted at them. 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," Njoroge said.
The CBK boss warned that some mobile lenders could be using personal finances, possibly proceeds of ill-gotten gains, to lend money to cash-hungry Kenyans, thereby sanitizing their riches.
Njoroge attributed the risks posed by mobile lenders to their ability to grow very quickly, which he said was problematic for the CBK. He emphasized the need for proper guidelines to be set to arrest any looming crisis that may be occasioned by the lenders.
"It is problematic to CBK when you think of money laundering. We see a major weakness because they can upscale very quickly and we need to regulate them because they have to be right-sized since they are not using depositors' money and they are not under prudential guidelines," Njoroge told the committee.
The lenders have also been criticized for charging exorbitant interest rates and lacking dispute resolution methods. Furthermore, the CBK pointed out that personal data acquired by creditors from their customers is at risk of being misused.
