Digital Lenders Oppose CBK’s Plans to Regulate Mobile Loan Interest Rates

As part of the Central Bank of Kenya (Amendment) Bill, 2020, the banking regulator is about to be given power over digital lending platforms in the country for the first time.

The proposed bill aimed at giving the CBK a mantle to oversee the digital lending space by regulating their conduct as well as ensuring there is fair and non-discriminatory access to credit.

Additionally, the bill gives the banking regulator power to control interest charges on loans.

In contrary to their earlier statement about backing CBK’s regulation of the sector, digital lenders are now saying otherwise. They say regulation is now being projected to hurt the flow of credit to small businesses.

Instead of regulating interest rates, the Digital Lenders Association (DLAK) is proposing the CBK to adopt risk-based loan pricing models. The risk-based loan pricing models are poised to be powered by machine learning technologies.

The DLAK argues that offering credit to every customer at a flat rate due to the difference in individual risk and the different purpose for borrowing.

DLAK feels the expensive lending rates tied to mobile loans can be justified with the risk associated with the risk involved in providing so-called unsecured or no-collateral loans.

“Whenever people start to say that 15 percent is like X percent per annum, they are making unfair comparison because we are not like banks who are providing this for at least 12 months. It may seem relatively high, but it’s not an interest rate,” says Ivan Mbowa, Tala’s regional general manager and director of Digital Lenders Association (DLAK) – via Business Daily.

Talks of predatory lending rates in Kenya are far wide-reaching as many continue to be trapped in debt and debt cycles.

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Alvin Wanjala

Alvin Wanjala has been writing about technology for over 2 years. He writes about different topics in the consumer tech space. He loves streaming music, programming, and gaming during downtimes.

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