The Central Bank has started the process of amending the law to regulate “exploitative and crazy” digital mobile lenders.
CBK Governor Patrick Njoroge on Thursday said they have proposed amendments to the Central Bank Act to enable it to regulate the digital lenders that have been accused of exploiting their customers.
“We have noted concerns on digital lenders on borrower indebtedness, financial integrity and consumer protection. Their rates are crazy and the way they deal with their customers is a concern,” Njoroge said.
He was responding to questions raised by the Senate ad hoc Committee on Covid-19 Situation over the measures the regulator has taken to cushion Kenyans in the wake of the contagion.
The measures come barely a month after Njoroge blocked lenders from forwarding the names of their loan defaulters to the Credit Reference Bureaus.
The CBK said the move was a result of the public outcry over widespread misuse of the credit information-sharing mechanism.
Njoroge said they are tightening the amendments to curb emerging issues, including concerns of money laundering by the digital lenders.
“We have more than 100 digital lenders and we don’t know the source of their money. Some of them could be laundering money and that is why we want to regulate them.”
The envisioned amendments will fix lending rates at a certain percentage and provide standard guidelines on the handling of the borrowers to arrest concerns of exploitation.
“We have been working on the amendments and we will regulate these entities the right way. They won’t be regulated like big banks but customers should expect to be treated with dignity,” he said.
The CBK boss said the Central Bank (Amendment) Bill, 2019, seeks to empower the CBK to regulate credit-only entities starting with the digital lenders. “The CBK will, in regulations set out a regulatory framework for digital lenders,” he said.
The regulator will focus initially on digital lenders and then extend to all unregulated credit providers in the country.
Njoroge told the committee chaired by Nairobi Senator Johnson Sakaja that they have taken emergency measures to shield commercial banks and cushion borrowers. They have lowered Central Bank rate from 7.25 to 7.00 per cent to signal banks to lower their interest rates to borrowers.
Banks have been directed to provide relief to personal loan borrowers based on their individual circumstances arising from the Covid-19 crisis.
“The relief on personal loans by banks will include a review of requests from borrowers for extension of their loan for a period of up to one year,” he said.
Small and medium enterprises (SMEs) and corporate borrowers can contact their banks for assessment and restructuring of their loans based on their respective circumstances.
In April alone, the seven largest banks restructured loans amounting to Sh176 billion.
“Requests for extension of personal loans and restructuring of other sectors loans are expected to ramp up in coming months if the pandemic continues to penetrate,” Njoroge said.