The growth of online mobile lenders is unique to Kenya for one primary reasons: mobile money services. Mobile loan apps have made a killing thanks to the robust mobile money ecosystem in the country, and that growth has been accelerated by our appetite for loans that are disbursed in a timely manner with zero paperwork.
A quick ‘mobile loan’ search in Google Play Store reveals tens of loan apps besides popular ones such as Branch, Tala and Okash. These organizations have a fairly official structure that has been leveraged to support their authenticity. However, the space, as mentioned, is filled with unscrupulous lenders, most of which have no known addresses but are functional nonetheless.
A couple of months ago, the Central Bank of Kenya reported it was planning the regulate the space. The announcement has since been concluded in the form of a Banking Charter that was proposed in late May, 2019. During the deliberation of the offerings of the proposal, the CBK Governor Mr. Patrick Njoroge reiterated what has always been the case with mobile loan apps: that they are shylocks using technology to mask their true operations of fleecing their customers with astronomical rates and devious terms and conditions.
The proposal aims to weed out most loan apps if they fail to adhere to new laws. In principle, the CBK wants online lenders to be regulated in a similar function as banks because they have a banking function (lending to customers).
According to the Standard, here are some of the charter’s proposed regulations:
- Mobile loan apps must text their customers of their product’s terms and conditions before approving a loan request. The terms and conditions must not be limited to an in-app version but also in USSD.
- Terms and conditions must state interest rates, fines for late repayment, complaint processes, and protection of consumer data. The data protection aspect is tricky to enforce because at the moment, the state does not have a solid data protection framework, although a bill proposing stringent privacy rules is currently undergoing discussion in Parliament. Of course, it is apparent that for these proposals go hand in hand else abuse of user data and privacy will continue.
- The proposal requires lenders to submit documentations such as credit agreements, fact statements and websites. Part of this information should be available in their offices/branches/agents.
The CBK is pursuing the proposal whose tough rules, should they be assented, will be instrumental in shaking up the online lending space that remains largely unregulated.