Digital credit providers (DCPs) in Kenya are under increased regulatory scrutiny following sweeping amendments to the Central Bank of Kenya (CBK) Act.
In December 2024, the CBK Act was amended by deleting references to “digital credit business” in sections 33S and 57 of the CBK Act and replacing it with “non-deposit taking credit providers (NDTCs).”. The changes mean DCPs are now under the direct oversight of the CBK.
The reforms introduce stricter compliance measures, with a deadline of June 28, 2025, for full adherence. To tackle widespread concerns regarding predatory loans, privacy infringements, and the opaque nature of digital lending, which affects over eight million borrowers in Kenya, this reform action was taken.
Key Regulatory Changes
1. Sector Reclassification: Digital lenders are now classified as Non-Deposit Taking Credit Providers (NDTCs), subject to enhanced compliance and reporting standards.
2. Pricing Controls: To protect borrowers from exploitative practices, the CBK has introduced interest rate caps on digital loans. This measure is expected to curb excessive interest rates and hidden fees that have left many borrowers trapped in debt cycles.
3. Data Protection Mandates: All digital credit providers must register with the Office of the Data Protection Commissioner (ODPC) and implement stricter data security protocols. This move comes amid rising complaints about the misuse of personal data by lenders, including unauthorized access to contact lists and aggressive debt collection practices.
4. Stronger Enforcement Measures: Non-compliant institutions face hefty penalties, including fines of up to KES 5 million and potential license revocation. The CBK has emphasized a zero-tolerance approach to violations of the new regulations.
5. Licensing Reforms: Digital lenders must meet a minimum capital requirement of KES 100 million, undergo board composition audits, and comply with all regulatory requirements within six months. These measures aim to weed out unqualified operators and strengthen the sector’s financial stability.
Read: ODPC Fines Loan App KES 5 Million for Personal Data Abuses
CBK Regulations Impact
Back in 2021, the amendment of the Central Bank of Kenya Act established licensing requirements for digital credit providers. This amendment then led the CBK to implement the Digital Credit Providers Regulations, 2022.
Applications of the new regulations then kicked out several players and have proven hard for most to adhere to. According to an October 2024 CBK report, while over 730 DCPs applied for licensing, only 85 have been licensed, with the remaining applications under review and pending required documentation.
Read: CBK Approves Licenses for 7 More Digital Credit Providers in Kenya
With yet another regulatory shift, it is expected compliance challenges may force more microfinance lenders out of the market. Firms may be driven to merge or acquire others to meet the demands of the new licensing regulations.
