Digital lenders must be licensed not just registered – CBK

Digital lenders must be licensed not just registered - CBK

Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019. The Central Bank of Kenya maintains that digital lenders must be licensed just like other financial institutions for effective regulation.

Presenting its position on the Central Bank of Kenya (Amendment) Bill, 2021 yesterday, the regulator said licensing of digital lenders will grant it an oversight role, leading to a robust credit market and consumer protection.

"The proposed law should provide CBK with general supervisory powers for effective regulation. It should also permit digital providers to carry accidental business,” Njoroge yesterday told the National Assembly Committee on Finance and National Planning.

CBK’s position is in contrast with the Digital Lenders Association of Kenya (DLAK) that wants the proposed law to limit them to registration rather than licensing, saying this will prove costly for them.

”We would like to suggest that regulation should focus on the registration process instead of licensing. This is a common practice for the digital lenders regulations implemented in significant jurisdictions in the EU like Spain and Poland,” DLAK said.

The lobby group said while it supports the proposed law, treating them like deposit-taking entities will be unfair.

”We do not take deposits from the public and lend off our own investments, profits, and capital, and as such, we do not pose a prudential risk and thus, capital adequacy requirements or prudential regulations are not a reasonable framework,” DLAK said.

The association said that consumer protection type of regulations that concentrate on lending and debt collection practices would be most ideal to the sector as digital lenders do not pose a systemic risk to the market given that they do not take deposits like banks or Saccos.

If passed into law, the Bill gives digital mobile lenders six months to be licensed by the CBK.

The banking regulator will be expected to determine minimum liquidity and capital adequacy requirements for digital credit providers akin to conditions set for operating a bank in Kenya.

The digital lenders will play under the same rules as commercial banks, including having to seek the CBK’s nod for new products and pricing that includes loans charges and putting a ceiling on non-performing loans at not more than twice the defaulted amount.The regulator will have to vet the management of digital loan providers, signaling a requirement to have a local officeThe main aim of the government-led law is to curb the steep digital […]

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