In a law barring their operation without the authority of the Central Bank of Kenya, an MP has moved to rid the country of unlicensed digital money lenders and shylocks.
According to nominated MP Gideon Keter, the role of CBK should be expanded for it to license and regulate all persons, institutions, or firms lending money to Kenyans.
This means that if it is passed, it would be illegal for any person, institution, or firm from lending money to Kenyans unless licensed by the Central Bank of Kenya.
CBK would also be required to set capital requirements for the said persons or entities as well as publish a list of licensed lenders every quarter. The new law also provides that every digital money lending institution shall be managed by at least two directors.
“Every foreign-owned Digital Money Lenders shall have one director who is a Kenyan citizen,” the bill reads. Lenders will be required to submit a copy of the company’s memorandum and articles of association under which it is incorporated, for licensing.
Part of the licensing requirement will be a verified notification of the company’s registered place of business. Digital Money Lenders will also provide details of their prospective place of operation indicating the address of the head office and branches.
There will also be required, evidence that the company meets the minimum prescribed capital requirements; a valid tax compliance certificate and any other requirements sought by CBK.
The Central Bank shall then require satisfactory proof of a valid service agreement between the applicant and the intended telecommunications service provider for those relying on a telco mobile money platform.
Entities will also need to provide the terms and conditions of the mobile lenders before activation of mobile loan accounts.
The licenses will last for a year and may be renewed upon expiry – renewals that are required to be made three months before the expiry of the license.
“The Central Bank shall publish in the Kenya Gazette a list of digital money lenders,” the bill reads in part. Every lender will also be required to expressly announce its interest rates when advertising its services.
According to Keter, the proposed law would safeguard the interest of consumers of the services of digital money lenders as indicated in the memorandum.
Under the Banking Act, digital money lenders are not recognized as financial institutions under regulation and supervision by CBK The proposed law follows in the wake of another proposal that sought to curb the steep digital lending rates said to have plunged many borrowers into debt traps.
It provided that digital lenders will require approval from the Central Bank to increase lending rates or launch new products.