Digital lenders are opposed to the rate cap plan that was proposed by the Central Bank as reported by the Business Daily.
They have warned against the introduction of controls on charges and fees on loans where they claim it will hurt the flow of credit.
“It’s unfair to charge every customer the same rate because different customers present different risk because of different intended use of the funds. Somebody borrowing for consumption should have a different rate from one borrowing to put in business,” Ivan Mbowa, the regional general manager for Tala and director at Digital Lenders Association said.
The association said that the industry will resist planned attempts to cap charges and instead lead on their risk based loan pricing models which are apparently powered by machine learning.
The Central Bank of Kenya Amendment Bill, 2020 seeks to regulate and supervise the conduct of providers of digital financial products and services and the actual financial products and services. These digital lending platforms have been working on a regulation loophole where there is no legal framework governing digital borrowing platforms.
“It’s unfair to charge every customer the same rate because different customers present different risk because of…different intended use of the funds. Somebody borrowing for consumption should have a different rate from one borrowing to put in business,” Mr Mbowa was quoted by the publication.
Digital lenders became incredibly popular in the last half decade and it led to a lot of digital lenders populating the app stores. They quickly became a scourge where they offered loans with interest as high as 480% a year, which is way higher than banks charge for loans. The Central Bank acted by denying them CRB access this year and followed up on this bill to regulate them as how they do it with commercial banks and SACCOs.
