- Digital lenders say they will now only lend to repeat customers on their own databases, a move that risks denying the majority of borrowers short-term loans.
- Current rules prohibit unregulated digital lenders from blacklisting defaults.
- The regulator estimates that there are more than 100 unregulated digital lenders operating in the country.
Digital lenders will no longer grant loans to new customers outside of their existing database of borrowers, citing their continued freeze on credit reference bureaus (CRBs).
Current rules prohibit unregulated digital lenders from blacklisting defaults, and they can only access a borrower’s credit information at a CRB with the express consent of the borrower and the central bank. of Kenya (CBK).
Digital Lenders Association of Kenya (DLAK) chairman Kevin Mutiso said its members will now only lend to repeat customers on their own databases, a move that is likely to deny the majority of borrowers loans short term.
The lobby represents 25 digital lenders, including Tala, Branch, Okolea, Zenka and Stawika.
Mr Mutiso said they have a total of three million active borrowers.
The self-imposed ban will also limit growth, given that individual businesses are unlikely to open their databases to competitors to verify potential borrowers.
Data protection law prohibits sharing of data with third parties without consent and gives individuals the right to be informed when their records are being shared and for what purposes.
“We’re just going to set new rules and say no to new clients because if we can’t get into the office, we can’t get to a new client’s file,” Mutiso said.
“We cannot continue to use CRB as a toy… because lenders are not allowed to give CRB positive or negative information. The CBK has banned unregulated digital lenders from blacklisting defaults since April 2020, following widespread public complaints about the misuse of credit information sharing and poor responsiveness to customer complaints.
In addition, they had listed many defaults with amounts below Sh1,000, forcing the CBK to issue guidelines that only defaults above Sh1,000 will be shared with CRBs and borrowers who had been blacklisted for. that the lower amounts be compensated unconditionally.
The freeze on CRB digital lenders saw them halving loans of around five million customers and disbursing loans to an average of 1.8 billion shillings per month, from 4 billion shillings.
“The challenge of the unpredictability and politicization of our industry will scare investors away, prevent us from coming up with new products or getting new customers or leaving the industry, taking the country back to 20 years,” Mr. Mutiso.
Lenders will, however, be allowed to re-enter the CRB system if Parliament passes the Central Bank of Kenya (Amendment) Bill 2021, which aims to place digital loan providers under the regulatory umbrella of the CBK.
The bill has already received approval from the National Assembly’s Finance and National Planning Committee, paving the way for debate.
Once digital lenders come under CBK oversight, the regulator will be able to oversee their use of credit information sharing like banks, saccos and other entities currently using the system.
The regulator estimates that there are more than 100 unregulated digital lenders operating in the country.
Even if the bill passes, digital lenders are unlikely to benefit much from being allowed to list short-term defaults after the blacklist of defaults with loans of 5 million shillings and less is suspended.
The moratorium on registrations is expected to last until September of next year.
The CBK has previously warned that commercial banks may resume rationing loans following the directive, particularly to individuals and small traders on a scale last seen between September 2016 and November 2019, when Kenya capped interest rates.
Bankers said a lack of credit reference information could be contributing to soaring loan costs and stopping business lending due to incomplete information on borrowers.
During the era of rate caps, people who couldn’t access small loans from banks sometimes turned to unregulated mobile lenders, which helped fuel their rapid growth during the period.