Kenyan President, Uhuru Kenyatta has approved a new law that gives power to the Central Bank of Kenya (CBK) to regulate the lending and credit market and take action against those that may be violating consumer privacy.
Under the amended Central Bank Act, 2021, CBK will have the authority to police any digital lenders that might be operating in the country and make sure that fair and non-discriminatory practices take place in the credit market as well, as reported by the president’s office.
Over the last decade, many startups and apps for mobile lending have popped up in Kenya, due to the growing demand for quick loans among people, but it is suggested that they are operating in an unregulated environment.
As per a clause in the new law, any person that has been dealing in the digital credit business, before the Act came into force, and was not regulated under any other law, will be required to apply for a license within six months of publishing of regulations.
The licenses will be permitted by the country’s monetary authority, i.e. the Central Bank of Kenya.
Due to a lack of regulations, customer privacy was not guaranteed because of which the digital lenders would be sharing user data with third parties.
Not only that, but those who were unable to repay the loan would be faced with constant reminder calls, and subjected to debt-shaming tactics, such as calling the defaulter’s friends or family to pay instead.
As per Kenya’s Data Protection Act, borrowers are required to keep confidential information safe from infringement by any unauthorized third party, and the firm should disclose their reasons for collecting the customer’s details.
It has been suggested that borrowers in emerging markets prefer digital lenders over conventional banking institutions and they are often unbanked and therefore cannot get financing from those institutions. Also, many of the lenders offer collateral-free loans, although at high-interest rates.
With this initiative, mobile loan apps will have to adhere to Data Protection Act, as well as Consumer Protection Act, or will have to face license suspension.