The central bank of Kenya is putting forward new legislation to govern interest rates charged for digital lenders’ loans. Online lenders will need the green light from the central bank to roll out new offerings or hike lending rates if the legislation is put into law, Quartz Africa reported.
Online lending has brought about a number of complications in Kenya, with digital loans reportedly leading rising personal debt for users in the country. It has also been reported that digital lenders use methods to get people to pay back loans such as messaging numbers in a debtor’s contact book.
Traditional financial institutions mandate that borrowers put up property to back their loans and follow a procedure that involves significant documentation. By contrast, online lending apps provide fast loans and ascertain if someone should receive a loan by looking through phone information such as bank balance messages and call records.
This kind of service has received momentum from individuals in the middle class and those who make modest incomes — people who usually weren’t able to receive credit from traditional financial institutions. It has also become known for very high interest ranges that can reportedly top out at 43 percent a month.
In October, news surfaced that the Kenyan National Assembly was mulling legislation that would make mobile lenders in the nation face central bank supervision. As a result, they would have to show their interest rates, as well as transaction charges, prior to giving out loans.
A member of the national assembly indicated per a past report that younger individuals are very susceptible to mobile lending companies, which are “too exploitative in their repayment terms by charging exorbitant interest rates.”
The legislation would have the central bank regulate and license the companies, and also make them meet thresholds for capital. In addition, the law would have checks for terrorism financing and money laundering.
At the time, it was noted that micro lenders are becoming more common in the country.