CBK Mandated to Control Mobile Loan Rates

The Central Bank of Kenya (CBK) has been granted express powers to control the lending rates of digital mobile lenders under a proposed law, purposed to see the regulator control their products, management, and sharing of borrower information.

According to the parliamentary committee on Finance and National Planning which approved the Central Bank Amendment Bill 2021,there will be an additional clause that gives the CBK powers to price interest
rates for digital loans.

The Central Bank of Kenya (Amendment) Bill, 2021, seeks to empower the banking regulator to supervise digital lenders for the first time in order to curb the steep digital lending rates that have plunged many
borrowers into debt traps.

According to the Bill, the digital lenders are to play under the same rules as commercial banks that seek the CBK’s nod for new products and pricing that includes loan charges. The Bill also comes amid complaints that digital lenders do not provide full information to borrowers on pricing, punishment for defaults and recovery of unpaid loans.

This is because digital lenders have been accused of abusing personal information collected from defaulters to bombard relatives and friends with messages regarding the default and asking third parties to enforce repayment.

Chairman Digital lenders Association of Kenya Kevin Mutual, has said that the committee has explicitly granted CBK powers to determine pricing parameters. ”This will ensure that CBK does not necessarily set the lending rate but
rather provide parameters within which digital credit providers shall set the cost of credit,” He explained.

This comes with the rise of unregulated microlenders who have invested in Kenya’s credit market to meet the high demand for quick loans. This has bagged borrowers with high-interest rates, rising up to 52 per cent when annualised and thus mounting defaults and an endless number of defaulters.

CBK has confirmed that borrowers tapping digital loans from unregulated lenders grew from 200,000 in 2016 to over two million in 2019. The committee rejected the proposal on capital and liquidity, saying digital lenders do not take deposits and, therefore, pose no danger to public funds.

The CBK earlier on raised an alarm that the credit-only mobile lending institutions are being easily used to launder illicit cash.

In April, the CBK barred unregulated digital mobile lenders from forwarding the names of loan defaulters to credit reference bureaus (CRBs).

M-Shwari, Kenya’s first mobile-based savings and loans product charges a “facilitation fee” of 7.5 per cent on credit regardless of its duration, pushing its annualised loan rate to 395 per cent.

Other major digital lenders Tala and Branch offer annualised interest rates of 152.4 per cent and 132 per cent respectively. The report of the committee is now before Parliament for debate and approval ahead of it becoming law.

BY PHILLY OPERE