The Central Bank of Kenya (Amendment) Bill of 2020 was passed by MPs, with the aim of shielding borrowers from predatory lenders. The bill would control mobile loan rates and the handling of defaulted credit in order to prohibit borrowers from lending money to Kenyans without first receiving a license from the Kenyan Central Bank (CBK). According to a bill notice read, “by barring any individual, institution, or company from lending money to Kenyans unless approved by the Central Bank of Kenya.”
Because of the increased demand for fast loans, Kenya's credit market has been saturated with investments from small unregulated lenders. As a result, borrowers have been burdened with high interest rates, resulting in an uptick in defaults and defaulters that have been listed with credit reporting agencies (CRBs). Currently, the CBK regulates banks and microlenders, but the Bill would allow it supervisory and licensing authority over hundreds of digital lenders operating in the region.
The government imposed a regulatory ceiling on commercial loan rates in September 2016, which not only reduced lending from private-sector borrowers, but also saw commercial banks refusing to lend to low-income consumers and small and medium-sized enterprises they considered too dangerous to lend to. Kenyans and other stakeholders are required to review and present their views on the CBK Amendment Bill before it is referred to parliament for discussion and vote. Digital applications are used by the majority of Kenyan households and small and medium-sized enterprises (SMEs) to navigate the credit system. More than 3.2 million Kenyans had been blacklisted as a result of digital loans by 2020. Digital borrowers are twice as likely to default as those who take out traditional loans, according to studies undertaken by Digital Credit, Financial Literacy, and Household Indebtedness.
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