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CBK wants Parliament to enact law to tame phone-based lenders

Mercy Mwai and Hillary Mageka@PeopleDailyKe

Central Bank of Kenya (CBK) has raised concern over proliferation of unlicenced and unregulated digital lenders, amid fears a few of them are enough to bring down the entire financial sector.

Governor Patrick Njoroge appealed to Parliament to urgently come up with a legal framework on how to stop the online platforms from exploiting desperate Kenyans seeking ways to make quick money.

“There is a huge lacuna in the current financial and customer protection laws which the operators are exploiting to manipulate consumers,” he said in Nairobi yesterday.

Njoroge said although the digital lenders are currently less than one per cent of the financial service providers in the market, it should be even a match [stick] is enough to burn an entire petrol station.

Petrol station

“We are basically playing with a match stick in a petrol station because these operators are enough to bring down the entire financial sector,” Njoroge said while appearing before the Senate’s ICT committee.

He appeared before the committee alongside ICT PS Jerome Ochieng and Communications Authority of Kenya Director General Francis Wangusi.

The Senate team by Vice-chairperson Halake Abshiro grilled the governor and ICT heads over concerns of customer data protection.

Njoroge regretted that the credit-only mobile institutions are not regulated and thus end up exploiting innocent Kenyans.

He said his office has so far received complaints about the high interest rates or transaction fees, multiple borrowing from different lenders, non-disclosure of pricing or terms and lack of complaints or dispute resolution mechanism.

“These entities are currently not regulated by CBK [and] concerns have arisen such as data privacy, source of funds and consumer protection,” added the governor.

He said: “There is no specific law that is targeted at how they are supposed to operate and be regulated unlike the case with commercial banks, Sacco’s and even chamas. We see their operations as a major problem and we feel that they need to be regulated.” Njoroge warned that mobile loan apps also have potential of being used as avenues for money laundering.

He told the committee that the online platforms were not making full disclosures in the interest of consumer protection as is required and thus were imposing their own regulations.

However, immediately he was done with presentation, Senators present took on him, accusing him of not doing enough to save customers from exploitation.

High rates

The senators also took him to task over the high rates on loans advanced by telecommunication companies such as Safaricom’s M-Shwari loan and Fuliza, demanding to know why are interests rates on the loans advances by the telcos are higher than the 14 per cent provided in law.

In particular, Narok Senator Ledama said CBK should consider separating the pay services operated by telecommunication companies so as to enhance their regulations.

“M-Pesa should for example, be separated from Safaricom and so is the Airtel Money. These should be considered as financial institutions and regulated fully as such.”

But in his response, Njoroge told the committee that loan products provided by the telcos are as a result of their agreement with banks which actually provide the loans advanced to customers.

The banking watchdog boss has in the  past asked the public to be on the lookout to avoid being duped by “unscrupulous” digital lending operators who are exploiting consumers’ ignorance.

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