Digital credit providers: New licensing requirements

Parliament adopted the Central Bank of Kenya (Amendment) Bill, 2021 (the Amendment Bill) which was gazetted on 16 April 2021. The principal object of the Bill is to provide licensing requirements for digital credit service providers, who are not regulated under any written law in Kenya.

26 May 2021 2 min read Corporate & Commercial Alert Article

At a glance

  • The Central Bank of Kenya (Amendment) Bill, 2021 aims to regulate digital credit service providers in Kenya.
  • The bill grants the Central Bank of Kenya (CBK) the power to license, supervise, and regulate digital credit providers, as well as establish requirements and regulations related to consumer protection, data protection, and anti-money laundering.
  • Digital credit providers will be required to register with the CBK, and failure to do so may result in fines and imprisonment. The bill addresses concerns over unethical practices and aims to create a more stable and responsible marketplace for digital lending.

The Amendment Bill defines digital credit to mean a credit facility or arrangement, where money is lent or borrowed through a digital channel. It further defines digital credit business to mean the business of providing credit facilities, or loan services through a digital channel. A digital channel will include the internet, mobile devices, computer devices, applications, and any other digital systems prescribed by the Central Bank of Kenya (the CBK).

Once the Amendment Bill is passed the CBK will have the power to:

  • license digital credit providers;
  • determine capital adequacy requirements;
  • determine minimum liquidity requirements;
  • approve digital channels and business models;
  • supervise digital credit providers; and
  • suspend or revoke licenses.

In addition, the CBK will be empowered to make regulations on consumer protection, data protection, permissible and prohibited activities, offences and penalties, anti-money laundering and reporting requirements. 

All digital credit providers will be required to be registered with the CBK within six months of the Bill coming into force. Failure to which, a fine of Ksh. five (5) million and/or imprisonment for a term of three years shall be imposed, upon conviction.

The proposed amendments have come amidst complaints of unethical practices engaged in by digital lenders. This unregulated service has occasioned steep lending rates, predatory lending practices, and an illegal coalition of customer’s private data and borrower shaming for those who default on repayment. There have also been reports on digital lenders carrying out money laundering practices. This has led the Competition Authority of Kenya to conduct an audit on digital lenders specifically on predatory pricing. In addition, organisations such as Paradigm Initiative, have launched platforms that enable citizens to report violations of digital rights. The Amendment Bill therefore forms part of a multi-level response to unethical practices.

The Amendment Bill will provide oversight that will create a more stable, responsible and level marketplace for digital lenders and borrowers. The Digital Lenders Association of Kenya have, however, cautioned against overly onerous, and prescriptive regulation that would undermine financial inclusion. In contrast, the CBK FinTech Cooperation Agreement with the Monetary Authority of Singapore, indicate that international best practices and favourable regulatory lessons will be adopted with respect to Fintech regulations.

The guardrails in the digital lending market are being raised, after years of unregulated operation. Existing digital credit providers and those who intend to enter the market, need to be aware of the proposed changes and prepare to comply with them. However please note that the Amendment Bill must go through the legislative process in Kenya, which involves a first, second and third reading in parliament, followed by presidential assent and enactment.

We are keeping a keen eye on the Amendment Bill and shall regularly provide alerts in the event of any developments.

The information and material published on this website is provided for general purposes only and does not constitute legal advice. We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter. We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages. Please refer to our full terms and conditions. Copyright © 2024 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us