In 2019, Kenya's National Assembly directed the Central Bank of Kenya (CBK) to regulate interest rates charged by over 500 unregulated digital microlenders, citing inconsistencies with 2016 lending policies. The Information, Communications and Technology (ICT) committee emphasized that rates should align with commercial bank standards, as current practices allow lenders to bypass a 14% cap established in 2016.
Digital lenders operating through mobile money platforms charge annualized rates ranging from 18% to 200%, according to a Financial Sector Deepening (FSD) study. The research highlighted widespread issues including hidden fees and unclear cost structures, with borrowers often unaware of loan terms. High rates are partly attributed to risk mitigation strategies for high-default populations, though factors like job loss and poor financial planning contribute to repayment challenges.
Major players in the sector include Letshengo, Tala, and Branch, while newer entrants like Car & General exploit high-profit margins. China recently banned microlenders from targeting income-less borrowers, a measure aimed at curbing over-indebtedness. The ICT committee's report urged the CBK to standardize rates and enforce transparency, stating, 'The interest rates should be those applicable to commercial banks for standardisation.'
