Digital lenders will not blacklist defaulters of up to Sh1,000 loans in proposed Central Bank of Kenya regulations that also bar such lenders from arbitrarily varying the price of credit.
The CBK draft Digital Credit Providers Regulations, 2021 published yesterday also bars the lenders from forwarding names of defaulters to Credit Reference Bureaus (CRBs) without getting consent from the customers involved.
“A digital credit provider shall not submit to any CRB any negative credit information of a customer or any other person where the amount related to the credit information does not exceed Sh1,000,” reads the draft in part. The regulation will be a relief to borrowers whose credit scores have been hurt by CRB listings over defaults of small amounts meant to meet basic needs, such as food and rent payment.
There are 378 million records held by CRBs, according to CBK, of which 42 million are blacklisted. Of these, 13 million are for amounts less than Sh1,000.
A recently released joint survey by CBK, Financial Sector Deepening Kenya (FSD Kenya) and the Kenya National Bureau of Statistics showed that 50.9 per cent of the respondents said they had defaulted on mobile loans.
CBK also wants to cap the maximum amount of money that can be deducted from a defaulting customer, a move that will shield borrowers from punitive charges that have seen many give up on repayments.
According to the draft, digital lenders will not be allowed to charge interest that exceeds the principal owed at the time a loan falls into default.
The proposed regulations will, however, not apply to banks, microfinance banks, Saccos, Kenya Post Office Savings Bank or any other entity approved by CBK.
The exclusion of these institutions could mean that defaulters of Sh1,000 and below on commercial bank-backed digital loan products such as M-Shwari and KCB M-Pesa may still be negatively listed on CRBs.
To rescue borrowers from opaque lending practices, CBK will require digital lenders to disclose to customers all the charges and fees, interest rate and total cost of credit.
Digital lenders intending to furnish CRBs with negative information concerning a customer will have to issue to the customer a 30-day notice or within a shorter period as the contract may provide.The proposed regulations bar digital credit providers, their officers, employees or agents from using threats, violence or other criminal means to physically harm the person or their reputation or property when collecting debts.The digital lenders will also not be […]