The relationship between Kenyan-based digital lenders and the Central Bank of Kenya has been a bumpy one to say the least, especially after the regulator took measures that equivaled to handcuffing them when they were denied access to the credit reference bureaus unless they submitted to regulation. The latest move by the CBK to cap loan rates has further fueled an already volatile relationship that has prompted digital lenders to warn of unprecedented negative effects to micro-sized businesses.
Speaking on behalf of Digital Lenders Association of Kenya, Ivan Mbowa the regional manager of Tala said they’ll protest planned legal attempts by the regulator to cap charges and instead promote risk-based loan appraisal models which are said to be powered by machine learning technologies.
In the latest efforts by the Central Bank of Kenya to cap rates charged by lenders on loans unveiled in the Central Bank of Kenya (Amendment) Bill 2020, the new regulations offer to give more powers to the regulator on loan pricing. This will in effect give more authority to the regulator to supervise digital lenders who have previously offered loans to Kenyans at exorbitant rates that led most of them debt traps.
Mr Mbowa further stated the move was unfair to charge all customers at a flat rate since different customers presented different risks depending on the intended use of funds. He gave an example of someone borrowing for consumption should have a different rate from one borrowing to put in business.
Before CBK stepped in, there has been hundreds of apps offering loans to Kenyans at very high rates that some ended up surpassing the 100 percent mark when annualized. This in turn led to massive defaults rendering most Kenyans to be listed with credit reference bureaus (CRBs).