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Currently, Kenya does not have a legal framework governing digital borrowing. However, with the increasing clamour to rein in rogue operators in the industry, Parliament has stepped in to introduce regulatory supervision of the sector through the Central Bank of Kenya (the CBK).
On 25 February 2021, the Central Bank of Kenya (Amendment) Bill, 2020, National Assembly Bill No. 47 of 2020 (the Bill) was tabled for the first reading in Parliament. The Bill seeks to make amendments to the Central Bank of Kenya Act (the CBK Act) to safeguard the interests of consumers of services of digital mobile money lenders by expanding the regulatory role of the CBK.
Scope of the Bill
The Bill specifically proposes to expand CBK’s remit to license and regulate any digital money lender offering “credit facilities” in the form of “mobile money lending applications”. Additionally, the Bill proposes to introduce capital requirements for digital lending as well as publishing every quarter a list of lenders in various categories including banks, lending institutions and firms.
While the Bill has demonstrably noble aims, it may lead to certain unintended consequences if enacted in its current form. For instance, the Bill does not clearly define the scope of its application. It is not, for example, clear what constitutes “credit facilities” or “mobile money lending applications” since the Bill does not offer concise definitions.
Given the lack of specificity, interpretation of these terms may be extended beyond Parliament’s original intent. If, for example, a business offers goods on credit and provides that repayment shall be done through an online platform, will that be deemed to fall under the Bill’s purview? Does a foreign lender offering credit through a digital platform need to be licenced under the Bill? These are some of the issues that need clarity.
It is also not clear whether the Bill will only apply to persons whose core business is offering credit facilities through a digital platform or will extend to other parties. Parliament also needs to clarify the position regarding existing mobile money lenders and by when they will need to be licensed whilst being allowed to continue as they are currently.
Licensed institutions such as banks that already offer digital lending services are also not exempted from the provisions of the Bill implying that they might need to obtain additional licences as digital lenders.
A key point to note is that in June 2020, different legislation (the Central Bank of Kenya (Amendment) Bill (No. 21 of 2020)) was introduced to the National Assembly with a similar objective of regulating digital lenders. While our commentary in this alert only extends to the Bill released in late November 2020, there is an urgent need for clarification from the National Assembly as to the status of the earlier legislation since the earlier legislation has a much wider scope in terms of its regulatory impact on the digital lending market compared to the Bill. Our analysis of the earlier legislation can be read here.