Digital money lenders in Kenya may have to look for an alternative market elsewhere outside Kenya as the country’s central bank has banned unregulated digital and credit-only lenders from the country’s credit information sharing (CIS), and introduced new rules that compel savings and credit societies (Saccos) to share credit information on their members with the credit reference bureaus to control rising bad debts in the sub-sector. 

“With immediate effect, CBK has withdrawn the approvals granted to unregulated digital (mobile-based) and credit-only lenders as third party credit information providers to CRBs,” the regulator said in a statement.

“The withdrawal is in response to numerous public complaints over misuse of the CIS by the unregulated digital and credit-only lenders, and particularly their poor responsiveness to customer complaints.”

Here Is What You Need To Know

Ban On Digital Lenders

• According to the Central Bank of Kenya (CBK), 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 above-mentioned lenders and particularly poor response to customer response.
• 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

Implications for Digital Lending Startups In Kenya:

This is going 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. 

Read also: COVID-19: Twiga Foods Partners With Jumia To Deliver Kenyan Online Shoppers Fresh Produce 

Extension of Repayment Period For Credit Facilities

• Banks in Kenya have also restructured Sh9.9 billion loans between March 18 and March 30 on request of customers following the effect of Covid-19 pandemic.
• A number of banks in March announced a loan holiday for small and medium enterprises (SMEs) and personal banking customers to cushion them against the economic disruptions caused by the Coronavirus disease (COVID-19).

“Borrowers should endeavour to reach out to their banks, explain to them how the pandemic has disrupted your cash flow and repayment of the loan you may be servicing, don’t wait,” said CBK Governor Patrick Njoroge.

• Following the outbreak of the disease, which has so far disrupted many businesses across the country, CBK in mid-March, ordered Kenyan lenders to provide relief to borrowers on their personal loans, with loans eligible from March 2 extended by up to one year.
• Speaking at an online post-Monetary Policy Committee press briefing on Thursday, the governor noted the far-reaching effects of the virus on Kenya’s economy noting that it will slow growth in 2020 to 2.3 per cent or even below from 5.4 per cent growth recorded last year.
• In support of his argument, the governor said already sectors such as the accommodation, transport and agriculture have contracted by 50, 10 and 2 per cent respectively. However, sectors such as ICT and health are expanding.

Read also:Kenyan And Nigerian Startups Selected For Google’s Accelerator Program On Sustainable Development Goals (SDGs)

“We expect 2021 to be a rebound, currently the estimate is 6.4 per cent,” Njoroge told a virtual news conference.
The current account deficit is seen at 5.6 per cent of GDP in 2021 compared with 5.8 per cent in 2020, he said.

• The governor also expects Diaspora remittances to slow in the month of April by between 12–15 per cent down from an increase of 229 million US dollars witnessed in March. Kenyans living in the United Kingdom, United States of America sent home the bulk of the money, other destinations such as the United Arab Emirates, South Africa and Mauritius recorded a decline.

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