Kenya Central Bank Seeks ‘Teeth’ to Regulate Digital Lenders


The Central Bank of Kenya needs “teeth” to rein in more than 100 lenders, who charge interest rates as high as an annualized 500% for loans disbursed over digital channels, according to Governor Patrick Njoroge.

The regulator wants the mobile-phone based and online lenders to disclose more information, including the source of funds and details on ownership for the industry that has “expanded in a way that needs to be pruned a little,” Njoroge told lawmakers in the capital, Nairobi.

Kenya Central Bank Seeks ‘Teeth’ to Regulate Digital Lenders

“We’ll have some teeth. While today I can talk as much as I want, I have no stick,” he said. “So yes, maybe they should be afraid of me.”

Commercial banks had 3.9 million mobile loan accounts as of April and about 50.6 billion shillings ($468.5 million) borrowed, according to the central bank. In comparison, unregulated digital lenders had an estimated 4 billion shillings, according to Njoroge. While the unsupervised lending accounts for less than 1% of the banking sector’s 3.2 trillion-shilling loan book, about two million people use them, and on average eight times a year, he said.

Digital lenders operating in Kenya include Tala Loans that’s backed by PayPal Holdings Inc and Female Founders Fund LLP, and San Francisco-based Branch International Ltd., whose backers include the International Finance Corp. and Khosla Ventures LLC, according to their websites. Both have operations as far as India and Mexico.

While the central bank is seeking general supervisory power over the lenders, it does not expect that they will be under oversight similar to commercial banks. They, for example, will not need to hold at least 1 billion shillings of capital, he said. In the proposals before parliament, they will be required to get licensed within six months of the amendments becoming law, and share credit information with the central bank.

Industry lobby Digital Lenders Association, made up of 22 lenders, said that regulation will cripple innovation. Njoroge denied that and said the central bank’s aim is to protect consumers and check money laundering.

As with commercial banks, which were tamed into lowering lending rates through the now-scrapped interest rate caps, digital lenders too will be expected to be transparent with consumers on the cost of credit when under the central bank’s surveillance.

“We come from the rather harsh environment of the interest rate caps, and also an environment where the commercial banks were king of the hill, meaning they didn’t care about the consumers. We have pushed them back into the box,” he said. “We also want to bring digital lenders in the box, gently in that way.”

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