More than 337 unregulated digital mobile lenders and micro financiers have been barred from forwarding the names of loan defaulters to Kenya’s credit reference bureaus (CRBs). The CRBs say the number of firms allowed to blacklist defaulters with the bureaus has dropped to 2,254 in September from 2,332 in May last year.
Ban On Digital Lenders
- According to the Central Bank of Kenya (CBK) in a statement released in March this year, digital and credit only lenders will no longer submit credit information on their borrowers to Credit Reference Bureaus (CRBs).
- In the statement, CBK explained that the withdrawal is in response to numerous public complaints about misuse of the Credit Information Sharing System (CIS) by the lenders and particularly poor response to customer response.
“The withdrawal is in response to numerous public complaints over misuse of the CIS (credit information sharing) by unregulated digital and credit-only lenders, and particularly their poor responsiveness to customer complaints,” the CBK said in an earlier statement.
- Under the new rules, only defaults above Sh1,000 will be shared with CRBs. Borrowers who had been blacklisted for lower amounts are now required to be cleared unconditionally.
- Firms such as Tala and Branch were locked out at a time when the bulk of accounts negatively listed with the CRBs — Metropol, TransUnion and Creditinfo International — are linked to mobile digital borrowers.
- In March this year, Kenyan Parliament considered a petition to launch investigations into the operations of digital money lending institutions over claims of exploitation of borrowers.
Read also: Lending Rate in Kenya Now 8.5%, Down From 9%, First Ever In A Year
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Implications for Digital Lending Startups In Kenya:
This will continue to be a hard time for startups desiring to set up a money lending business in Kenya anytime soon. Without having the power to report customers for blacklisting to the country’s central credit information sharing center, it is only safe to say that their business model has become entirely a highly risky one.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer