Getting loans in banks can be pretty stressful given the model banks run when giving out loans. This created an opportunity for fintechs (digital lenders), "offering loans to loan seekers by eliminating the rigorous processes associated with getting loans from the banks."
In Kenya, these lenders operate in an unregulated environment, which has led to the invasion of clients' privacy.
For instance, given the fact that these lenders provide uncollateralized loans, they employ debt shaming tactics to recover loans when customers default on loan repayments. This includes sending customers' contacts messages to report how the customer has scammed them; these people could be friends, work colleagues or even in-laws.
The latest development in Kenya suggests that the country's digital lending space is about to witness a significant change.
Today, the country's president, Uhuru Kenyatta, approved a new law that gives the country's monetary authority, the Central Bank of Kenya (CBK), the power to regulate the industry and take action on those that violate consumer privacy.
"The amended Central Bank Act, 2021, gives the Central Bank of Kenya authority to license digital lenders in the country as well as ensure the existence of fair and non-discriminatory practices in the credit market," said the president's office.
Under the new rule, existing digital lenders have six months to apply for the licenses. New entrants (digital lenders) are required to apply for licenses from the CBK, as compared to previously when they only had to register to set up operations in the East African country.
In the future, mobile loan apps will be required to reveal all the information concerning their products, including details on pricing, penalties for defaulters and the modalities of debt recovery.
Kenya in focus:
GDP: $98.843 in 2020 compared to $95.403 in 2019
Population: 53,771,300 in 2020 compared to 52,573,967 in 2019
GDP per capita: $1,838 in 2020 compared to $1,816 in 2019