The pulp and paper mill received the authority to control the rates on mobile loans

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Economy

The pulp and paper mill received the authority to control the rates on mobile loans


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Central Bank of Kenya. FILE PHOTO | NMH

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Summary

  • The Parliamentary Committee on Finance and National Planning approved the bill to amend the Central Bank in 2021 and added a clause that gives the PPM the authority to determine interest rates on digital loans.

MPs have offered the Central Bank of Kenya (CBK) explicit powers to control lending rates for digital mobile lenders under a proposed law that would require the regulator to oversee their products, manage and share borrower information.

The Parliamentary Committee on Finance and National Planning approved the bill to amend the Central Bank in 2021 and added a clause that gives the PPM the authority to determine interest rates on digital loans.

Now, a key goal of the 2021 Central Bank of Kenya (Amendment) bill, which aims to empower the banking regulator to oversee digital lenders for the first time, is to contain the high digital lending rates that have plunged many borrowers. into a debt trap; and into predatory lending.

Initially, the draft law did not say anything about lending rates, but only said that digital lenders should act according to the same rules as commercial banks, which seek to get PPM approval for new products and prices, which include loan fees.

The committee’s report has now been submitted to parliament for discussion and approval before it becomes law.

“The Committee has directly endowed the pulp and paper mill with the authority to determine the parameters of pricing.

This will ensure that the CBK does not necessarily set the interest rate, but rather provides the parameters within which digital loan providers will set the cost of the loan, ”said Kevin Mutiso, chairman of the Digital Lenders Association of Kenya (DLAK).

Dozens of unregulated microloans have invested in Kenya’s credit market in response to the growing demand for quick loans.

Their proliferation burdens borrowers with high interest rates, which rise to 520 percent year on year, leading to escalating defaults and an ever-growing number of defaulters.

With limited or no access to credit, many Kenyans are now finding that they can get loans in minutes using their mobile phones.

The PPM reports that the number of borrowers receiving digital loans from unregulated lenders has grown from 200,000 in 2016 to over two million in 2019.

The bill also came amid complaints that digital lenders do not provide full information to borrowers about prices, penalties for default and collection of outstanding loans.

Digital lenders have been accused of misusing personal information obtained from defaulters in order to bombard relatives and friends with default messages and ask third parties to secure repayment.

The push to control digital lenders came more than a year after Kenya lifted the legal cap on commercial lending rates.

The restriction, introduced in September 2016, slowed growth in private sector lending as commercial banks turned their backs on millions of low-income clients, as well as small and medium-sized enterprises that were deemed too risky to lend.

The ensuing credit crunch spurred an appetite for digital loans, attracting unregulated microloans in response to the growing demand for quick loans.

Market leader M-Shwari, Kenya’s first mobile savings and loan product introduced by Safaricom and NCBA in 2012, charges a 7.5% “facilitation fee” per loan regardless of the term, resulting in an annual the loan increases to 395%.

Tala and Branch, other leading players in the mobile digital lending market, offer annual interest rates of 152.4 percent and 132 percent, respectively.

In April, the PPM banned unregulated digital mobile lenders from forwarding the names of defaulters to the credit bureaus (CRB).

The committee dropped the requirements for the banking regulator, which is expected to set minimum liquidity and capital adequacy requirements for digital credit providers, similar to those set for a bank to operate in Kenya.

The committee rejected the capital and liquidity proposal, saying digital lenders do not accept deposits and therefore pose no risk to public funds.

Earlier, the pulp and paper mill sounded the alarm that mobile lending institutions, which provide only loans, are easily used to launder illegal funds.

Money laundering, which involves transferring and concealing illicit funds to make them appear legitimate, is mainly used by criminals and corrupt individuals to clean up their wealth.

The bill requires firms to disclose to the pulp and paper mill the source of funds that institutions provide loans to combat money laundering and terrorist financing.

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