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Digital Lenders in Kenya Form “Self-regulating” Group Amid Tough Talk from the Central Bank

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Digital Lenders in Kenya Form “Self-regulating” Group Amid Tough Talk from the Central Bank

Digital lenders in Kenya have joined together to form a group to promote best practices in the industry as the government moves to regulate the industry.

Members of the Digital Lenders Association of Kenya (DLAK) mission is to set ethical and professional standards in the industry, to collaborate with policymakers and other stakeholders in addressing industry issues, contribute to knowledge and learning and to drive the overall growth of the digital lending and FinTech sector in line with the Economic Pillar of the Vision 2030.

Digital Lenders Association of Kenya (DLAK) chairman Robert Masinde said the association that currently has 12 members will engage the government on regulations and promote responsible borrowing as well as transparency among the players.

“A vibrant and diverse digital lending sector has successfully established itself in the country and we feel the time is right to give it a voice and promote global best standards,” Mr Masinde said. Adding that: “DLAK will enable digital lenders to speak with a common voice, promote best practices, and influence how the sector develops while promoting the ethical business practice to the benefit of customers.”

The twelve lenders include Tala, Alternative Circle, Stawika Capital, Zenka Finance, MyCredit, Okolea, LPesa, Kopacent, Four Kings Investment T/A Sotiwa, Kuwazo Capital, Mobile Financial Solutions and Finance Plan Ltd.

The Central Bank of Kenya has indicated the need to have lenders within the FinTech space regulated and to operate within central government stipulated standards.

“There has to be a proper regulation, where similar products are regulated in a similar way so long as you are lending to customers or receiving deposits. If you have a banking function, it is not just about the name; you have to be regulated in the same way or it will lead to arbitrage,” said the CBK Governor, Patrick Njoroge.

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The Central bank governor has also dismissed any kind of self-regulating structure for the digital lenders warning of risks of potential abuses.

“Self-regulation is what importance is to self-importance. There is no such place for self-regulation. The danger relates to the conflict of interest; this is why you need to have regulation based on specific principles most important being the protection of Wanjiku,” noted CBK Governor Patrick Njoroge during his Monetary Policy Committee (MPC) post briefing on May 28, 2019.

The digital lenders who have also been equated to Shylocks have come under public backlash for unethical and erratic practices including sending messages to their customers’ contact list whenever they default.

In particular, mobile app Okash has been accused of unorthodox sending of repayment messages to the contact list of the customers in a bid to recover the funds.

Lack of uniform credit rating mechanism has also led to exorbitant interests rates of up to 200 per cent being charged on clients without full disclosure to the clients.

According to a study by the Financial Sector Deepening (FSD-Kenya), digital credit has become a leading source of credit in Kenya with at least 27 per cent of Kenyan adults have taken at least one digital loan. The report also cites that the most common reasons for digital borrowing among Kenyan adults are business and day-to-day needs. 

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