The Regulations were issued pursuant to section 57(1) of the Central Bank of Kenya Act, Chapter 491 (‘The Act’) which provides for the passing of regulations or guidelines for the purpose of giving effect to the provisions of the Act.

Digital Credit Providers (hereinafter ‘DCP’s) refer to any person or business entity that provides loan services through the internet, mobile services, computer devices, applications or other digital systems as may be prescribed by a bank.

According to the Digital Credit Market Inquiry Report May, 2021 by Competition Authority of Kenya and Innovations for Poverty Action, “Digital credit emerged in Kenya in 2012 with the introduction of Mshwari from Commercial Bank of Africa (now NCBA Bank Kenya PLC) and Safaricom”. In the 10 years since, there are approximately several hundred lenders estimated to be operating in the Kenyan market. This report can be accessed here.

The Regulations ensure the supervision of unregulated DCP’s in order to curb discriminatory practices in the credit market. DCP’s are now required to apply for licenses from the Central Bank of Kenya unlike previously when they only had to register the business name via e-citizen to set up operations in the country.

However, it’s important to note that these Regulations will not apply to the following;

1. Institutions licensed under the Banking Act Chapter 488;
2. Institutions licensed under the Microfinance Act, No. 19 of 2006;
3. Sacco societies licensed under the Sacco Societies Act, 2008;
4. The Kenya Post Office Saving Bank supervised under the Kenya Post Office Savings Bank Act Chapter 493B;
5. Credit arrangements between customers and business owners whose primary focus is the provision of goods and services; and
6. Entities whose digital credit businesses are regulated under other written laws.

Salient features of the Regulations.

The Salient features of the Regulations include;

• Licensing of digital credit providers– Regulation 4 provides for the prescribed form and documentation that DCP’s require for application of licenses from the Central Bank of Kenya. The Licensing requirements for DCP’s can be accessed here.
• Governance of digital credit providers– DCP’s are required to practice sound corporate governance principles based on ethics, fairness, transparency and integrity while engaging their customers and to the Central Bank of Kenya. This addresses the issue of poor customer care as most unregulated DCP’s fail to address complaints by customers.
• Sharing of Credit information– As per Regulation 14, licensed credit reference bureaus and DCP’s are allowed to exchange both positive and negative credit information concerning their customers while discharging their functions. However, DCP’s who intend to share negative credit information to licensed credit reference bureaus have to inform their customers beforehand. The Regulations impose restrictions on sharing of credit information by DCP’s regarding their customers to third parties. This addresses the issue of phishing attempts by scammers and privacy concerns of shared information by consumers without their consent.
• Digital credit business– DCPs while extending loans to their customers are subject to credit policies set by the Central Bank of Kenya. This provision will ensure transparency on unexpected, extra or unclear charges imposed on customers by DCP’s. Also, DCP’s will have a proper structure on timing of fees, charges and penalties which will lead to better monitoring of pricing trends in the market.
• Consumer protection– DCP’s have a duty to maintain high standards of protection of their customer’s information by ensuring record keeping of their customer’s transaction receipts. Also, DCPs are required to have customer complaints resolution mechanisms which are timely and confidential in nature.
• Anti–Money Laundering and combating the financing of Terrorism- DCP’s are required to comply with the Proceeds of Crime and Anti-Money Laundering Act, 2009 and the Prevention of Terrorism Act, 2012 and their relevant regulations. DCP’s are required to furnish the Central Bank of Kenya with evidence and sources of funds when called upon in cases whereby funds are suspected to be proceeds of crime.
• Oversight and Enforcement by the Central Bank of Kenya– the Central Bank of Kenya will be monitoring DCP’s closely and imposing administrative sanctions to DCPs which contravene these Regulations. This provision will contribute to a more competitive digital credit ecosystem by ensuring transparency and the increase in customer awareness of different DCP’s based on their previous criminal records.
• Review– DCP’s have the right to review any decision passed against them by the Central Bank of Kenya.

Conclusion.

In recent years, digital lending firms have significantly flooded the local market due to the high demand for quick credit that is instant, automated and can be accessed remotely. The Regulations have addressed concerns raised by the public such as high incurrence of digital fees, poor customer care, fraudulent loan attempt offers and privacy concerns of data shared with DCP’s.

Pursuant to the publication of these Regulations, all previously unregulated DCP’s are required to apply to the Central Bank of Kenya for a license within six months of the publication of the Regulations that is by 17^th September, 2022 or cease operations.

The Regulations can be accessed here.

Please contact us at Info@cfllegal.com should you require further information.

The Central Bank of Kenya (Digital Credit Providers) Regulations, 2022 (‘The Regulations’) were published via Legal Notice No. 46 of 18^th March 2022. This article will shed light on the purpose, salient features and importance of the Regulations.

The Regulations were issued pursuant to section 57(1) of the Central Bank of Kenya Act, Chapter 491 (‘The Act’) which provides for the passing of regulations or guidelines for the purpose of giving effect to the provisions of the Act.

Digital Credit Providers (hereinafter ‘DCP’s) refer to any person or business entity that provides loan services through the internet, mobile services, computer devices, applications or other digital systems as may be prescribed by a bank.

According to the Digital Credit Market Inquiry Report May, 2021 by Competition Authority of Kenya and Innovations for Poverty Action, “Digital credit emerged in Kenya in 2012 with the introduction of Mshwari from Commercial Bank of Africa (now NCBA Bank Kenya PLC) and Safaricom”. In the 10 years since, there are approximately several hundred lenders estimated to be operating in the Kenyan market. This report can be accessed here.

The Regulations ensure the supervision of unregulated DCP’s in order to curb discriminatory practices in the credit market. DCP’s are now required to apply for licenses from the Central Bank of Kenya unlike previously when they only had to register the business name via e-citizen to set up operations in the country.

However, it’s important to note that these Regulations will not apply to the following;

1. Institutions licensed under the Banking Act Chapter 488;
2. Institutions licensed under the Microfinance Act, No. 19 of 2006;
3. Sacco societies licensed under the Sacco Societies Act, 2008;
4. The Kenya Post Office Saving Bank supervised under the Kenya Post Office Savings Bank Act Chapter 493B;
5. Credit arrangements between customers and business owners whose primary focus is the provision of goods and services; and
6. Entities whose digital credit businesses are regulated under other written laws.

Salient features of the Regulations.

The Salient features of the Regulations include;

• Licensing of digital credit providers– Regulation 4 provides for the prescribed form and documentation that DCP’s require for application of licenses from the Central Bank of Kenya. The Licensing requirements for DCP’s can be accessed here.
• Governance of digital credit providers– DCP’s are required to practice sound corporate governance principles based on ethics, fairness, transparency and integrity while engaging their customers and to the Central Bank of Kenya. This addresses the issue of poor customer care as most unregulated DCP’s fail to address complaints by customers.
• Sharing of Credit information– As per Regulation 14, licensed credit reference bureaus and DCP’s are allowed to exchange both positive and negative credit information concerning their customers while discharging their functions. However, DCP’s who intend to share negative credit information to licensed credit reference bureaus have to inform their customers beforehand. The Regulations impose restrictions on sharing of credit information by DCP’s regarding their customers to third parties. This addresses the issue of phishing attempts by scammers and privacy concerns of shared information by consumers without their consent.
• Digital credit business– DCPs while extending loans to their customers are subject to credit policies set by the Central Bank of Kenya. This provision will ensure transparency on unexpected, extra or unclear charges imposed on customers by DCP’s. Also, DCP’s will have a proper structure on timing of fees, charges and penalties which will lead to better monitoring of pricing trends in the market.
• Consumer protection– DCP’s have a duty to maintain high standards of protection of their customer’s information by ensuring record keeping of their customer’s transaction receipts. Also, DCPs are required to have customer complaints resolution mechanisms which are timely and confidential in nature.
• Anti–Money Laundering and combating the financing of Terrorism- DCP’s are required to comply with the Proceeds of Crime and Anti-Money Laundering Act, 2009 and the Prevention of Terrorism Act, 2012 and their relevant regulations. DCP’s are required to furnish the Central Bank of Kenya with evidence and sources of funds when called upon in cases whereby funds are suspected to be proceeds of crime.
• Oversight and Enforcement by the Central Bank of Kenya– the Central Bank of Kenya will be monitoring DCP’s closely and imposing administrative sanctions to DCPs which contravene these Regulations. This provision will contribute to a more competitive digital credit ecosystem by ensuring transparency and the increase in customer awareness of different DCP’s based on their previous criminal records.
• Review– DCP’s have the right to review any decision passed against them by the Central Bank of Kenya.

Conclusion.

In recent years, digital lending firms have significantly flooded the local market due to the high demand for quick credit that is instant, automated and can be accessed remotely. The Regulations have addressed concerns raised by the public such as high incurrence of digital fees, poor customer care, fraudulent loan attempt offers and privacy concerns of data shared with DCP’s.

Pursuant to the publication of these Regulations, all previously unregulated DCP’s are required to apply to the Central Bank of Kenya for a license within six months of the publication of the Regulations that is by 17^th September, 2022 or cease operations.

The Regulations can be accessed here.

Please contact us at Info@cfllegal.com should you require further information.