Tracking Digital Lending Regulation as Proposed Framework Goes Through Public Scrutiny

CBK Governor Patrick Njoroge

The journey to regulating the digital mobile space by the VBK started a long time ago.

Precisely, we can point out 2018 as the year when key regulators said that they had identified a problem with the digital lending craze, and a lot of customers were finding themselves listed by the CRB for defaulting as little as KES 200.

In the same breath, it was reported that loaning apps were predatory, because they took, and still take advantage of the digital platform (that does not ask for paperwork as is the case with traditional borrowing) to charge outrageous interest rates, alongside stringent regulations.

Back in May 2018, Treasury said it was planning to introduce a regulatory framework for the online lending space.

The motivation for the announcement, besides the aforementioned issues, was that online lending was not subject to any legal bounds.

This is because the space was practically new as of two or three years ago, but we cannot say the same thing now because the involved players have matured, hence the need to introduce some sanity backed by a Parliament Act.

A couple of months later, CBK echoed Treasury’s announcement by stating that it was planning to introduce tougher rules to manage the online lending space. Dr. Patrick Njoroge made the reveal at a Department Committee of Communication address.

Njoroge said that the lobbying was being done based on the National Payment Systems Act. He cited that the majority of borrowers were using the funds to bet (the gaming space has since been halted) and that some users were not aware of the financial implications of their borrowing.

The following year (2019), nothing really happened, and consumers and friends of the industry were worried that CBK and associated regulators and legislators were dragging their feet to address the digital loan issues.

In early 2020, however, it emerged that a digital lending charter was being drafted. According to the monetary authority, the digital lending charter would guide app-based lending and was to be released in the coming days.

Months later, the CBK presented the Central Bank of Kenya (Amendment) Bill, 2020. The premise of the proposal is to regulate digital financial products and services, including digital credit providers.

According to the proposal, its objective is to ‘amend the Central Bank of Kenya Act in order to ensure that the Central Bank of Kenya regulates the conduct of providers of digital financial products and services and financial products and services.’

The bill introduces a rate cap plan. However, the clauses by the CBK have since been rejected by digital lenders, citing that they are constructed to hurt them in the long run.

It’s unfair to charge every customer the same rate because different customers present different risks 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, Regional General Manager for Tala and Director at Digital Lenders Association 

According to Digital Lenders Association, the organization plans to resist plans to cap charges. Instead, the association wants to continue using risk-based lending that examines the ability of a borrower to furnish loans based on their data.

Nevertheless, the public has been welcomed for input and comments about the proposal.

Views should be emailed to the Parliament Clerk before August 11.


The experiences of online lending apps have laid bare a few realities of financial regulation in Kenya.

For instance, balkanized legal frameworks impose an enormous burden on loan apps and online financial apps.

It is likely a significant compliance cost will come into play should the bill go through, and this might force them to run under regulatory uncertainty, and they might also be exposed to the risk that their rivals will take advantage through regulatory arbitrage.

Furthermore, and as mentioned by the Digital Lending Associations, some of these regulations will weigh heavily on them especially in the innovation sector, bearing in mind that while they are exploitative to some extent, they have filled a space left by traditional banks.

Finally, we do not how fast the bill will be tracked, but we will update you as soon as we get more information.

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Kenn Abuya is a friend of technology, with bias in enterprise and mobile tech. Share your thoughts, tips and hate mail at [email protected]