Over the past decade, many mobile loan applications have been launched in Kenya, meeting the growing need for quick loans.
However, these startups have operated in an unregulated environment – until today, when the country’s President, Uhuru Kenyatta, approved a new law that gives the country’s monetary authority, the Central Bank of Kenya (CBK ), the power to regulate the industry and take action against those who violate consumer privacy.
“The amended Central Bank Act of 2021 empowers the Central Bank of Kenya to license digital lenders in the country and ensure the existence of fair and non-discriminatory practices in the credit market.” noted the president’s office.
Under the new legislation, lenders are required to apply for licenses from the CBK, compared to before, when they only had to register to establish operations in the East African country. .
The lack of regulation meant that customer privacy was never guaranteed, as these digital lenders arbitrarily shared user data with third parties. Additionally, clients who failed to repay their loans faced endless reminders from debt collectors, who also used shame tactics, such as calling friends and family to force defaulters to pay.
Almost all loan applications used humiliating tactics to collect debts in Kenya. They have also faced allegations of using predatory lending tactics.
Digital lenders now have six months to apply for the licenses.
“Anyone who, before the entry into force of this law, practiced in the field of digital credit and is not governed by any other law, must apply for a license … within six months of the publication of the regulation”, according to a clause of the new adopted law.
Digital lenders are preferred by borrowers in emerging markets, who are often unbanked and do not have access to financing from conventional banking institutions.
In addition, loan apps offer unsecured loans, but they are also expensive, with annualized interest rates of up to 876%, according to this. report who published the results of the exorbitant and predatory pricing strategies of the Chinese-owned Okash and Opesa loan applications.
Other loan applications in Kenya include Branch International Ltd., based in San Francisco, and Tala, backed by PayPal.
Loan applications will have to respect customer privacy by adhering to “the terms of the data protection law or the consumer protection law”, or risk license revocation.
Kenya’s data protection law ensures that borrower’s confidential information is secure from being breached by unauthorized parties and requires companies to disclose to customers the reasons for their data collection. Loan apps have previously been accused of sharing customer data with allies and marketing firms.
Usually, loan apps collect borrowers’ phone data, including contacts, and request access to messages to check mobile money transaction history – for credit scoring and as loan disbursement terms.
Dishonest lenders, however, use some of the contact information collected to retrieve disbursed loans in the event of borrower default or for marketing purposes.
Going forward, mobile lending apps will be required to reveal all information about their products, including details on pricing, defaulters penalties, and debt collection terms.
This is in accordance with Kenya’s Consumer Protection Act, which requires sellers to disclose to consumers all terms and conditions relating to the purchase of goods or services.