Digital lenders are now kept on a close watch as the government seeks to rescue Kenyans from their exorbitant rates. These informal money lenders operate under no regulation and most, if not all lack the relevant licenses. The liberalization has resulted to the money lenders charging their clients interest rates of up to 200% (APR).

Mobile loan apps in Kenya are getting as many as our constituencies. Every day, a new one is being advertised on the highways. The fact is that all these lenders have one thing in common. They are taking advantage of the desperate ‘common Mwananchi’ who is running a household or an SME.

In a bid to protect the consumer from the many fraudulent dealers, the Central Bank of Kenya (CBK) has now put digital money lenders on a notice. Dr. Patrick Njoroge, the CBK Governor has asked Kenyans to be keen. He is concerned that these exploitative operators will take advantage of Kenyans and their seemingly ignorant desperation to swindle them.

To be able to keep the consumer shielded, the CBK is on a move to label all the approved digital money lenders.

 “All financial services and products will soon have a label of approval by the CBK to be able to guide users on which products to use,” Dr. Njoroge Said.

The CBK Governor was speaking on Wednesday, June 19 2019 in Kondele Market, Kisumu County during the rollout of yet another loan app, Stawi. This app is a project of five commercial banks, including CBA (Commercial Bank of Africa), KCB (Kenya Commercial Bank), Cooperative Bank, NIC Bank and DTB (Diamond Trust Bank).

Stawi loan has SMEs as their key target.

The Kenyan parliament, back in September 2016 saw President Uhuru Kenyatta sign into law Section 33B of the Banking Amendment Bill, 2016. This section capped all the interest rates at only 4% above the CBK rate.

The law makers wanted to protect the Kenyan consumer from banks which were then getting exploitative charging borrowers an APR of up to 30%.  They were taking advantage of the free-floating interest system.

With the control by the law, the banks ‘kicked off’ the household and SME from their loan clientele. The informal sectors hence got a huge market at their disposal, whom they are now exploiting mercilessly.

The government has therefore seen a great need to have the digital lenders guided by some law on what interest rates they are giving their clients. They might also be forced to adhere to the same Section 33B of the Banking Amendment Bill, 2016.

“As the body which regulates commercial banks and deposit-taking microfinance institutions, we will ensure that merchants don’t take advantage of Kenyans who are seeking quick loans,” said Dr. Njoroge.

Take for instance, Tala which charges a borrower at 11% for a loan period of 21 days and 15% for 30 days. Financial experts calculates this to 180% interest rate per annum. This might be one of the better ones. We might not need to dig deep into others because the figures might be more shocking.

Digital lenders and all Kenyans as well, need to know this new CBK dispensation. The lenders to do the necessary and secure their business and the borrower to be on the look-out for the CBK approval label to stay safe from exploitation. As a lender, you don’t want to find yourself where these driving schools did.