Technology is a good thing, but it also comes with negative effects, Kenya is reputed as the as a pioneer of financial inclusion through its early adoption of a mobile money system such as M-Pesa that enables people to transfer cash and make payments on cell phones for the un-banked.
However, lenders using the same mobile money technology to offer credit services to the banked and unbanked may be saddling borrowers with high interest rates and leaving regulators scrambling to keep up.
The Kenyan finance ministry published a draft bill on financial regulation which covers digital lenders for the first time.
A key aim is to ensure that providers treat retail customers fairly, it said.
“We have a lot of predatory lending out here, which we want to regulate,” Geoffrey Mwau, director general of budget, fiscal and economic affairs at the treasury, told reporters on Thursday.
In the last three years, 2.7 million people out of a population of around 45 million have been negatively listed on Kenya’s Credit Reference Bureau, according to a study by Microsave, a consultancy which advises lenders on sustainable financial services. For 400,000 of them, it was for an amount less than two dollars.
The new draft bill says digital lenders will be licensed by a new Financial Markets Conduct Authority and that lenders will be bound by any interest rate caps the Authority sets.