There have been enough complaints concerning loan apps in Kenya, due to the lack of regulation of the sector. Thankfully, The Central Bank (Amendment) Bill of 2021 seeks to resolve this issue. The Bill, brought to the National Assembly by Hon. Gladys Wanga, primarily seeks to amend the Central Bank Act, Cap 491, by putting digital credit facilities under the regulation of the Central Bank of Kenya. It is notable that there have been three amendments of this kind, with the first being sponsored by Hon. Charles Keter, and the second being sponsored by the late Hon. Oroo Oyioka. In this article, we focus our attention on the third and latest one, which seeks to revive the discussion after the demise of the honorable member of parliament.
The Amendment Bill seeks to equip the Central Bank of Kenya (CBK) with powers to license and supervise digital credit providers. Digital credit providers are persons licensed by CBK to carry on the digital credit business. The digital credit business is the business of providing credit facilities or loan services through a digital channel, including, but not limited to, the internet, mobile devices, computer devices, and applications. Therefore, if the Bill is passed, the Central Bank of Kenya will become the regulatory body in charge of digital credit providers, and will perform regulatory roles such as licensing them, determining their capital adequacy requirements and determining their minimum liquidity requirements. These roles will mostly be effected through subsequent regulations. CBK will also be mandated with determining the digital channels and business models through which the digital credit business may be conducted.
Since CBK will be mandated with supervising these entities, every person conducting such business will be required to register with CBK within six months of coming into force of the Bill, when enacted. Regulations guiding on the registration process, among other things, should be published within three months of the enactment of the laws. Essentially, this leaves three months for registration, which means that digital credit providers will have to stay alert in this area. Failure to register will attract a fine of up to five million shillings, or a three-year imprisonment term, or both. The only exception to this is if a digital credit provider is regulated under a different law, such as KCB Mpesa, which is regulated by the Banking Act, since it is a product of the Kenya Commercial Bank.
As alluded to earlier, regulation of digital credit entities has been advocated for greatly in the recent past. It is clear, however, that some of the provisions in this Bill may act as inhibitors to technological growth, since certain technological enhancements will be subjected to the consent of the Central Bank of Kenya. Knowing that the law in the country is not as agile as it could be, this may hinder technological advancement in the area of digital credit facilities and businesses. It is, however, a much-needed regulation, to protect the common citizen from violations such as breach of data protection protocols, and payment of exorbitant interest rates.
The 2021 Amendment Bill has not yet been tabled in the National Assembly. All eyes are on the National Assembly, once the Bill is tabled, to ensure that reasonable changes are introduced into the Bill, such as the extension of the registration period from three months, to at least six months. Another important amendment would be to make the terms of regulation less stringent, to allow for technological advancements that may come faster than the law is able to keep up. We are, however, looking forward to see the reception of the Bill, not only in Parliament, but also on the ground.
By Victory Wanjohi
For further information on this and other legal issues, be sure to contact us at vicky@mmsadvocates.co.ke or info@mmsadvocates.co.ke