This archive report was first published on 26 October 2019.
Published on October 26, 2019, a proposed law to regulate mobile loan apps in Kenya has received widespread support from experts in the financial sector.
The proposed law aims to bring all mobile loan apps under the regulation of the Central Bank of Kenya, forcing them to disclose interest rates and transaction fees before giving loans.
Chris Useki, Chief Executive Officer of Stima Sacco Society Limited, expressed his support for the move, stating, “I support the move to regulate mobile loan apps if only it can protect the interest of both the innovator and the client. We are seeing a trend where there are mobile loan apps that are out to exploit their customers and this is why we need some form of regulation and control.”
Useki added that while regulation may stifle growth and innovation, protecting gullible customers is not too much to pay.
There are over 50 mobile loan services operating in Kenya, most of which operate without formal supervision. The Central Bank regulates mobile-lending services linked to commercial banks, but other digital lenders are unregulated.
Young people are particularly vulnerable to the lending platforms, which charge exorbitant interest rates and have commercialized poverty, according to Gideon Keter, a member of the National Assembly who prepared the proposed law.
The proposed law seeks to expand the role of the central bank to license and regulate micro-lenders, prescribe capital requirements, and is due for publishing by the end of the year.
Central Bank Governor Patrick Njoroge has previously termed phone app lenders as “plain vanilla” loan sharks and called for their regulation.
Experts argue that regulation will protect both lenders and borrowers from exploitation, and provide standards to deal with moral hazards, such as lending to someone with no credit history or loan repayment patterns.
