MPs approve new law to regulate mobile lending rates

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MPs approve new law to regulate mobile lending rates


Central Bank of Kenya. PHOTO FILE | NMG

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summary

  • Parliament approved a bill to regulate mobile loan rates and the treatment of delinquent loans to protect borrowers from predatory lending.
  • On Thursday, lawmakers agreed for consideration and debate on the bill which, if passed, will put dozens of digital and mobile lenders under the oversight of the Central Bank of Kenya (CBK).

Parliament approved a bill to regulate mobile loan rates and the treatment of delinquent loans to protect borrowers from predatory lending.

On Thursday, lawmakers agreed for consideration and debate on the bill which, if passed, will put dozens of digital and mobile lenders under the oversight of the Central Bank of Kenya (CBK).

The Central Bank of Kenya Bill 2020 (Amendment) is now before the National Assembly’s Finance and National Planning Committee, where Kenyans and other stakeholders will be invited to give their views before it is returned to the House for debate and vote.

The CBK currently regulates banks and micro-lenders, but the proposed changes will now grant it supervisory and licensing powers to oversee hundreds of digital lenders operating in the country.

“The proposed amendment aims to achieve the following objectives, prohibiting any person, institution or business from lending money to Kenyans without authorization from the Central Bank of Kenya,” says an opinion on the bill sponsored by the MP named Gideon Keter.

Dozens of unregulated micro-lenders have invested in Kenya’s credit market in response to growing demand for quick loans.

Their proliferation has imposed high interest rates on borrowers, which climb to 520% ​​when annualized, resulting in growing defaults and an ever-increasing number of defaults that have been unfavorably listed with credit reference bureaus ( CRB).

Market leader M-Shwari, Kenya’s first mobile savings and credit product introduced by Safaricom and Commercial Bank of Africa, charges 7.5% “facilitation fees” on credit regardless of term, bringing its annualized lending rate to 395%.

Tala and Branch, other leading players in the mobile digital lending market, offer annualized interest rates of 152.4% and 132% respectively.

The push to control the activities of digital lenders comes more than a year after Kenya removed the legal cap on commercial lending rates.

The cap, introduced in September 2016, had slowed growth in credit to the private sector as commercial banks turned their backs on millions of low-income customers and small and medium-sized businesses deemed too risky to lend.

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