Kenya’s Digital Lenders Face Licensing Hurdles as CBK Requires Physical Offices for Inspections

Digital lenders in Kenya are facing challenges as they attempt to comply with new regulations issued by the Central Bank of Kenya (CBK) requiring them to have a physical office in the country that is open to inspection at any time. The new rules, published earlier this year, are meant to ensure that the CBK and other appointed agencies can carry out inspections and verify the sources of funds for these lenders. Most of the foreign-owned digital lenders operating in Kenya had previously operated virtually due to the lack of a law requiring them to have a physical presence. The CBK has granted licenses to just 10 of the many digital lenders that have emerged in the country in recent years.

The CEO of one of these lenders, who wished to remain anonymous, stated that the lack of a physical office is just one of the issues facing these digital lenders, along with “opacity in the source of their funds” and the fact that “most of them originate funds from tax havens and areas where money laundering is not restricted.” A multi-agency team made up of security agencies has been inspecting the offices of these lenders as part of the process of granting a CBK license. Some of the foreign-owned digital lenders have been linked to individuals from the Philippines, China, and Nigeria.

According to CBK data, the number of borrowers of digital loans in Kenya reached over two million in 2020, up from an estimated 200,000 in 2016. In response to the growth of this industry, Parliament amended the law last year to allow for the regulation of digital lenders, as the CBK had previously identified them as a potential avenue for money laundering. In addition to facing licensing challenges, digital lenders have also been criticized for failing to fully disclose the terms of their loans, charging steep interest rates, and aggressively contacting the friends and relatives of borrowers who default on their loans.


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