The Central Bank of Kenya doesn’t seem to have launched an all-out war against digital lenders in Kenya following the new powers it has been given under the country’s amended Central Bank Act, after all. This is because under a set of proposed regulations rolled out by the CBE, it will cost prospective digital lenders just Ksh. 25,000 (US$220) to apply for and secure a digital lending license in Kenya. However, while Ksh. 25,000 may be paid before a company may be issued with the new category of license, it costs Ksh. 20,000 (about $180) to renew the license on a yearly basis. 

“Following Presidential assent on December 7, 2021, the Central Bank of Kenya (Amendment) Act, 2021, has become effective today, December 23, 2021. 

….These Regulations shall not apply to — (a) an institution licensed under the Banking Act; (b) an institution licensed under the Microfinance Act; © a Sacco society licensed under the Sacco Societies Act; (d) Kenya Post Office Savings Bank supervised under the Kenya Post Office Savings Bank Act; (e) Credit arrangements involving the provision of credit by a person that is merely incidental to the sale of goods or provision of services by the person; (f) Any other entity approved by the Bank,” CBE states about the proposed regulations.

What Operations Are Allowed Digital Lending Firms Under The New Regulations? 

According to the rules, digital lenders are only allowed to extend loans and engage in any other activity that the central bank deems appropriate from time to time.

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The regulations specifically indicate that in the course of conducting digital lending operations, a digital lender may not invite or collect money deposits in any way.

What Are Required For Licensing?

In order to obtain the license, the digital lender must: 

• Be a duly registered company in Kenya; 

• Ensure that its major shareholders, directors and chief executive officer meet the fit and proper criteria;

• It must submit a list of documents stated in the regulations (which could be found here). The documents include a detailed description of, and terms and conditions of credit products and services which the proposed digital credit provider intends to provide; the proposed digital credit provider’s data protection policies and procedures; a certificate issued pursuant to section 19 of the Data Protection Act; a statement as to compliance with the provisions of Part VII of the Consumer Protection Act, etc.

How Many Days Does It Take To Procure The License, And Is Approval Of The Application Guaranteed? 

Under the rules, the central bank has sixty days (60) from the submission of a complete application to grant the license. 

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However, it should be noted that every application for a digital lending license does not guarantee the grant of the license. The Central Bank of Kenya will also consider the following factors: 

• the applicant’s background; 

• the professional and moral suitability of those proposed to manage or control the proposed digital credit provider; 

• the sources and evidence of funds to be invested by or in the digital credit provider;

• the digital credit provider’s systems, policies, and procedures.

• the applicant’s governance and risk management arrangements; 

• the public interest.

Under What Circumstances Can The License Be Suspended Or Revoked? 

The Central Bank of Kenya may suspend or revoke a digital credit provider’s license if the licensee, among other things: 

• is found to have provided false information during the license application; 

• carries out activities outside the scope of licensed activities; 

• is in violation of the conditions of the Data Protection Act or the Consumer Protection Act;

• conducts its business in a way that is harmful to its customers or members of the public

What Obligations Await Digital Lending License Holders? 

Under the regulations, the holder of a digital lending license must, among other things: 

• ensure that customer information is not shared with any person without the customer’s consent.

• shall not submit negative credit information of a customer or any other person to any credit reference bureau (to which it is required to disclose any positive or negative information about its customers) where the amount related to the credit information does not exceed one thousand shillings (approximately $10).

•  ensure that the customer’s consent is obtained before the submission or sharing of credit information with a credit reference bureau.

• shall not (either through its officers, employees or agents) in the course of debt collection engage in any of the following conduct against the customer or any other person — (a) use of threat, or violence or other criminal means to physically harm the person, or his reputation or property; (b) use of obscene or profane language; (c) make unauthorized or unsolicited calls or messages to a customer’s contacts; (d) improper or unconscionable debt collection tactic, method or conduct. (e) any other conduct whose consequence is to harass, oppress, or abuse any person in connection with the collection of a debt.

• may extend loans to its customers subject to its credit policy and any requirements of the Central Bank, and shall provide clear disclosures of the terms and conditions of the loan to the borrower including — (a) charges and fees and the circumstances under which they may be imposed; (b) interest rate to be charged and whether on a reducing balance or not; (c) total cost of credit which shall include the principal amount, interest, fees and charges; (d) the date on which the amount of credit and all interest, charges or fees are due and payable; and (e) customer complaint handling procedures. 

• Find others here. 

When Is The Licensing Expected To Commence? 

The licensing commences immediately the proposed regulations become effective. 

However, any person who was operating digital lending business that was not regulated under any other written law at the time the regulations were published must apply to the Bank for a license within six months of the publication of these Regulations.

What Punishments Await Digital Lenders Who Violate The Regulations? 

Anyone who engages in digital lending without first obtaining the necessary license commits an infraction and faces a fine of 500,000 shillings (($4,500) or two years in prison, or both, if convicted.

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Any person carries out any activity other than the provision of loans or other activity permitted by the central bank commits an offence and shall be liable upon conviction to a fine of ksh. 500,000 ($4,500) or imprisonment for a term of five years or to both.

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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