Regulating digital lenders in Kenya: The benefits for consumers and industries

By Tejpal Bedi, SEACOM Managing Director and Regional Head of Sales for the ENEA region.

In 2021, President Kenyatta approved an amendment that gives the Central Bank of Kenya powers to license and oversee previously unregulated digital money lenders. Citing technology advances and ongoing innovation in the sector, the monetary authority recognised the growth of lending through digital channels (particularly via mobile phones) as well as challenges that have accompanied this growth.

The amendment is a significant step forward for a sub-industry backed by Kenya’s reputation as a technological oasis on the African continent, and introduces several benefits, including safeguarding consumer and business rights, further legitimacy for existing providers, and oversight that results in improved and standardised quality levels of service.

Borrowing money in Kenya

During the last decade, the number of digital lenders and loans has grown exponentially. A FinAccess survey conducted between October and November 2018 showed that 13.6% of adults in Kenya had used a digital loan in the past year. For context, the same survey found that only 9% of adults reported using a traditional loan from a bank or non-bank financial intermediary.

Kenyans predominantly borrow money through their mobile phones. In the first quarter of 2020, there were around 10.2 million mobile loan borrowers (up from six million in Q4 2019), while approximately 92% of the total accounts opened during that quarter were for mobile loans. At the same time, mobile loans made up 75% of loan accounts offered by the banking sector.

Exploitation and other challenges

Fintech platforms can directly impact a person’s livelihood, helping to secure and manage the finances of people and businesses, while offering them peace of mind and convenience. However, like many other technologies, these platforms are subject to questions regarding security and privacy, and the threat of exploitation.

These problems are illustrated by stories of borrowers receiving countless phone calls of varying intensity, digital lenders requiring loan repayments within short periods of time, and exponential interest rates. Sharing loan defaulters’ personal data is also an issue, with Kenya going so far as to grant regulators the power to revoke operator permits that breach client confidentiality, in line with existing legislation, such as the Data Protection Act. Before licencing requirements, all it took to operate was to register, which in turn opened the door to rogue and unethical operators.

Oversight equals protection and legitimacy

So, what should digital lending look and feel like?

Adhering to licencing and operating requirements as set out by regulators, a good lending entity embraces transparency and dedication towards its clients. Thanks to cutting-edge infrastructure and Internet connectivity on a national level, the means to access and engage with these entities already exist.

Legislation that acts as oversight in the sector can legitimise vendors and provide a level playing field for all, while reinforcing the protections that give consumers and businesses the assurance they need to execute their financial strategies to their full potential.

Kenya’s digital economy has the potential to uplift citizens and businesses and address the numerous challenges they face both online and in the real world. Mobile money plays an important part in this. And with countless apps and companies claiming to offer the best financial solution, oversight is essential as we broaden our digital horizons.

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