CBK sets stage for tighter mobile lending regulations

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The Central Bank of Kenya (CBK) is conducting a study on the impact of its policies and regulations on lending through mobile phones and the Internet.
Though accurate data is not available, the number of mobile money lenders has grown significantly in recent years to the extent the CBK is concerned that the space may be expanding faster than the CBK can regulate more effectively.
The players are coming up with new and varied products for the market.
The mostly unregulated business of predatory lending is booming with increasing advertisements on billboards, on radio and social media offering instant loans.
“Regulations for non-deposit taking microfinance institutions are yet to be put in place. The National Treasury is in the process of discussing the best way forward for regulating the non-deposit taking microfinance businesses,” the CBK says on its website.
CBK governor Patrick Njoroge, however, said that the regulator has a way of overseeing operations as they transact and transfer money.
“We regulate all money transfers; it’s part of our mandate, the point is that it is actually evolving and not so cut and dry,” Dr Njoroge said.
The platform has, however, grown in popularity because of offering instant credit, employing technology and building a credit history for their customers to identify good borrowers.
Some of these lenders, however, fail to indicate interest rates — only giving a figure to be paid monthly or weekly, but if calculated the repayment stands at astronomical figures.
Others claim their interest rates are near-zero, which conceals the fact that they are calculated monthly and, if calculated per annum, they are significantly higher than what a bank charges.
Early this month, mobile lending application Mkopo Rahisi which said it was rebranding into a financial service platform christened Tala said it has dispensed Sh700 million to more than 70,000 customers in the past 11 months.
Tala vice president in East Africa Amanda Donahue admitted that most of their clients came back for new loans to offset the old ones creating a cycle of dependency on the pay-day loans.
“Repayment rates are more than 95 per cent and more than 90 per cent of the customer’s return for a second loan,” she said.
The CBK has noted the risk that the mobile lending space could grow even bigger if the formal banking system which is closely scrutinised by the regulator is slapped with a new law capping rates.
Dr Njoroge warned MPs that capping interest rates may spark a shark economy through predatory lending.
The mobile lending space is now seeing global firms and venture capitalists circle Nairobi to gain from the attractive rates.
Tala is funded by Inventure who in September last year raised Sh1 billion ($10 million) to launch into additional markets in sub-Saharan Africa and Asia.
Other mobile- or computer-based applications, are Branch that belongs to a company based in San Francisco and Nairobi, and Zawadi Kenya, Saida, Get Cash, Cash Now, and Pesa Direct.
They are competing with local banks and telcos, including Safaricom’s M-Shwari, Equity Bank’s Equitel, Co-operative Bank’s M-Coop Cash and KCB-M-Pesa.
Dr Njoroge said the growth of mobile money is a challenge to economists globally as it poses the risk of delaying transmission and effectiveness of monetary policies.

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