Digital lenders want capital requirement exclusion under proposed law

Digital Lender Association of Kenya (DLAK) want to be excluded from the capital requirements which will be determined by the Central Bank of Kenya in order to operate.

The Central Bank of Kenya (Amendment) Bill 2021, proposes that CBK be the licensing authority for digital lenders, supervise digital credit providers, suspend or revoke a license and will also determine capital adequacy requirements for digital credit providers.

In Kenya, banks are required to have a capital requirement of Kshs. 1 billion to operate.

“Digital Lenders do not take deposits from the public and lend off their own investments, profits, and capital, and as such, they do not pose a prudential risk and thus, capital adequacy requirements or prudential regulations are not a reasonable framework for the industry,” said Kevin Mutiso, DLAK chairman.

CBK Governor Dr Patrick Njoroge while giving post-Monetary Policy Committee briefing on Thursday backed the bill to reduce risks that have befallen consumers over time.

“We expect that the bill will go in quick order through the second and third reading. Once it passes and becomes effective we will take over and apply it. We do understand the risks and pain that this bill intends to resolve,” said Dr Njoroge.

DLAK argues that they absorb 100% of the risks as a result of lending to customers and lack deposits to act as collateral thus the lender apply risk-based pricing on loans issued per individual.

“We propose that all customers shall be provided with clear, transparent, and articulated information on the pricing of the loans before they apply for the loan by providing the conclusion of the loan agreement in the unified form with the key financial information concerning the loan. This solution is implemented in all EU countries, but also we can find it in Uganda,” added Mutiso.

The lenders also propose that registration of all operator with CBK be extended to 9 months after the enactment of the law as opposed to 6 months.

The bill is currently under public participation which will be concluded 28th May 2021.


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