Market Developments: Dr Kamau Thugge CBK Reveals Plans for Licensing of Digital Lenders in Kenya
In a shocking revelation, Dr. Kamau Thugge, the Governor of the Central Bank of Kenya, has disclosed that among approximately 400 digital lenders, only 32 hold licenses.
Dr. Kamau Thugge revealed this in a recent Finance session at the Senate, where he faced scrutiny from the Senate Finance committee on whether CBK had instituted a predatory lending detection system and whether, as the regulator, they had taken action against entities abusing the law.
“We realise that the digit credit providers (DCP) were not really consumer friendly that is why we brought them under CBK, we have licensed 32 quite a number a remaining,” Dr Kamau Thugge told the senators.
“Our initial position was that we give them a deadline under which they must license otherwise they could not carry out this kind of business, “he added.
The Senate Finance committee sought to know from CBK whether it had instituted a predatory lending detection system and whether, as the regulator, they had reined in on entities abusing the law. This after it emerged that most of the lenders were unregulated, exposing borrowers to exploitation.
Senate’s inquiry was triggered by petitions on four micro-lending entities imposing huge interests against the provisions of the Digital Credit Providers Regulations of 2022. The Senators are calling for an investigation into Momentum Credit, Mogo, Watu, Tugende Credit, and Progressive Credit.
The Central Bank was expected to issue a list of compliant players by September 17 last year and shut down those that failed to meet strict consumer protection rules introduced under Digital Credit Providers Regulations, 2022.
Digital lending has reshaped Kenya’s financial landscape, with services like M-Pesa Fuliza emerging as transformative players.
M-Pesa’s lending service utilizes transaction data and mobile phone usage patterns to provide instant microloans, extending financial access even to individuals without a credit history.
While these innovations bring convenience and financial inclusion, concerns arise regarding the risks associated with unlicensed digital lenders.
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Unlicensed digital lending poses significant risks to both consumers and the broader economy. Consumers may find themselves burdened with expensive loans, driven to borrow without genuine need, and encountering difficulties in timely repayment.
Moreover, the repercussions extend to negative credit bureau listings, compounding the challenges for individuals seeking future financial opportunities.
In response to these risks, the Central Bank of Kenya (CBK) plays a crucial role in regulating and overseeing digital lending practices. The CBK’s interventions are instrumental in establishing a framework that safeguards consumers and ensures the stability of the financial system.
