Digital lenders in Kenya must disclose source of funds as new law comes into effect – TechCrunch
Digital Credit Providers (DCPs) in Kenya will be required to disclose their funding sources and provide proof of them following the coming into force of a law to regulate the sector.
The new regulations published On Monday, the country’s financial regulator, the Central Bank of Kenya (CBK), is also requiring digital lenders to obtain a license from the country’s monetary authority or end their operations by September 2022. Digital lenders do not were previously only required to register businesses to begin operations in the country.
Disclosure of the source of funds, the CBK said, aims to ensure that lenders do not engage in financial crimes like money laundering.
“A digital credit provider must provide the Bank (CBK) with evidence and sources of funds invested or proposed to be invested in the digital credit business and demonstrate that the funds are not proceeds of crime,” read partly DCP regulations.
Development finance institutions (DFIs), commercial banks, private equity firms and high net worth individuals are some of the most popular sources of funding, especially debt, which is used for subsequent lending by creditors in digital space.
The new regulations came into effect after the country’s President, Uhuru Kenyatta, approved the CBK Act in December last year, giving the bank the power to license digital lenders and guarantee “the existence fair and non-discriminatory practices in the credit market”. », bringing order to a sector that had been self-regulating for years.
Kenya is home to over a hundred loan apps, which are popular for their unsecured and instant loans disbursed through mobile phones. However, concerns have been raised about the way most operate – with some accused of predatory interest rates and debt collection tactics. Popular apps include Tala and Branch, backed by Silicon Valley, and Zenka Finance, which is owned by Latvian businessman Aigars Kesenfelds. Others are Opesa, Okash and Credit Hela, all of which are linked to Chinese billionaire Yahui Zhou.
With the new law, digital lenders will have to disclose all loan terms and fees, including interest rates, and the total amount to be repaid. They will also be required to seek bank approval before changing their pricing models.
Additionally, they were prohibited from sharing their customers’ data with third parties and using threatening language, accessing or contacting their customers’ phone contacts, and using “impermissible debt collection tactics.” “.
“The settlement is intended to address concerns raised by the public given the recent significant growth in digital lending, particularly via mobile phones. These concerns relate to the predatory practices of previously unregulated digital credit providers, and in particular, their costly and unethical debt collection practices and misuse of personal information,” the CBK said.
“The Regulations provide, among other things, for licensing governance and personal data lending practices. They also provide for consumer protection, the sharing of credit information and describe the obligations of DCPs with regard to the fight against money laundering and the financing of terrorism (AML/CFT).
Digital lenders who flout new regulations, including sharing defaulters’ personal data with third parties, risk penalties or license revocations.