Digital lenders have until September 17 to apply for new licenses from the Central Bank of Kenya (CBK) or shut down their operations.
The deadline is intended to exclude operators who will not be in compliance with the recently published Digital Credit Providers regulations.
The new rules address high interest rates, unethical debt collection practices, and the misuse of personal data by some digital lenders.
The regulator expects the new rules to restore order in digital lending firms that are prone to consumer abuse, despite the country’s updated National Payment System.
Tala, Branch, M-Shwari, M-Coop, and IMoney are among the major players in the digital money lending space.
CBK has prohibited lenders from sharing customer information with any other person unless the customer consents or permission is required by law.
They are also prohibited from submitting negative credit information about a customer or any other person to a Credit Reference Bureau (CRB) if the outstanding amount relating to the credit information is less than Sh1,000.
A lender who intends to provide negative information about a customer to a CRB must notify the borrower at least thirty days in advance.
Digital debtors will also no longer have to worry about lenders threatening them with violence or harming their reputation or property if they do not repay their loans.
Borrowers avoided unregulated digital loans due to debt shame and high interest rates, with applications dropping by 6.2% in 2019.
The use of obscene or profane language sent to the customer or the customer’s references for the purpose of shaming them may now result in the lender’s operation licence being suspended.
Lenders will no longer be permitted to access the customer’s phone book or contacts list, as well as other phone records, in order to send them messages in the event of late or nonpayment.
Posting personal or sensitive information about customers online or on any other forum or medium for shaming purposes is also prohibited under the new regulations.
President Uhuru Kenyatta approved the Central Bank Amendment Bill, 2021 in December, giving the CBK authority to regulate non-deposit-taking credit providers, who had previously been largely unregulated.
The law gives the regulator the power to revoke the licenses of digital lenders who violate the confidentiality of personal information in order to pursue defaulting borrowers and those who charge exorbitant interest rates on loans.
With the Data Protection Act in place, lenders must also obtain permission from the Office of the Data Protection Commissioner (ODPC) to control data processing.
Meanwhile, digital lenders are still waiting for the court to rule on their petition prohibiting KRA from collecting or demanding payment of 20% excise duty on loan fees.
The additional taxation on all digital loan fees was implemented following an amendment to the Excise Duty 2015 of the Finance Act.
According to the Digital Financial Services Association of Kenya, the new tax will subject lenders to double taxation, which is against the constitution.
