Crackdown on unlicensed firms slashes digital creditors in Kenya down to 51. Just before consumer protection laws were passed in the country, any lender could easily and effectively run a digital credit business.
Crackdown on Unlicensed Firms in Kenya
Kenya has granted approval for the operation of 17 new digital credit providers (DCPs), including Autochek, a startup specializing in car loans. This decision comes a year after the licensing of 32 digital credit providers.
The Central Bank of Kenya (CBK) continues to scrutinize applications from digital lenders, issuing licenses to a total of 51 lenders so far. This rigorous vetting process reflects a crackdown on predatory practices and aims to address borrower concerns, particularly regarding unethical loan collection techniques.
In 2022, Kenya took decisive action through the CBK to shut down all digital lending companies operating without licenses. This directive required these companies, which had proliferated to hundreds, to cease operations immediately and seek permits from the CBK.
The licensing framework was established under the CBK (Digital Credit Providers) Regulations, 2022, which introduced data protection laws to safeguard borrowers against the illegal use of their personal information.
Kenya Unlicensed Digital Lending Platforms
Before these regulatory changes, Kenya had numerous unlicensed digital lending platforms. However, public outcry over high interest rates, personal data misuse, and unethical debt collection practices prompted the government to intervene. The CBK stated that the licensing and oversight of DCPs were prompted by concerns raised by the public regarding the predatory practices of unregulated DCPs.
The Aftermath of the Enactment of the Law
Following the enactment of the law, only a select few digital lenders, such as Branch and Tala, were permitted to continue operating in Kenya. Subsequently, over 480 digital lenders applied for licenses, underscoring the lucrative nature of online lending in the country.
The regulatory overhaul was a direct response to public outrage over the unchecked practices of digital lenders, including exorbitant interest rates reaching up to 400% annually, among other unethical business conduct.
Content of the New Law
Under the new law, the CBK (Digital Credit Providers) Regulations, 2022, all digital credit providers must register as data controllers and processors with the Office of Data Protection (ODPC). Additionally, credit providers are required to demonstrate the source of their funds as part of anti-money laundering measures.
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