The Central Bank of Kenya (“CBK”) now has powers to regulate the digital lending business granted through amendments to the Central Bank of Kenya Act (Chapter 491 of the Laws of Kenya) (the “Act”) which took effect on 23rd December 2021.
The CBK has published draft regulations, the Central Bank of Kenya (Digital Credit Providers) Regulations (“Regulations”), setting out the requirements and procedure to be followed for applications for the digital credit provider license. It is important to note that the Regulations are still in draft form and the provisions could be amended in the final version that is published by the CBK, based on the public participation exercise conducted by the CBK.
Among the requirements for the licensing application include:
- A certified copy of the certificate of incorporation of the digital credit provider – this implies that a branch would not be able to apply for the license
- A certified copy of the Memorandum and Articles of Association of the proposed digital credit provider
- Notification of the proposed digital credit provider’s registered business address – a digital credit provider must have at least one registered physical office in Kenya.
- A certified copy of the Memorandum and Article of Association of any corporate body that proposes to have a significant shareholding in the digital credit provider- significant shareholding is defined to mean at least 10% of the shareholding in the digital credit provider
- A certified copy of the constitutive documents of an unincorporated person that proposes to have a significant shareholding in the digital credit provider (this is also at least 10% of the shareholding in the digital credit provider)
- Description of the information and communications technology system to be used in the operations of the digital credit provider
- Description of the delivery channels or platforms to be deployed by the digital credit provider – under the Act, the CBK has the powers to approve the digital channels through which digital credit business may be conducted
- Description of and the terms and conditions of credit products and services which the digital credit provider intends to provide – the CBK would have the opportunity to require compliance with its principles on consumer protection and the Consumer Protection Act as provided in the Regulations.
- Agreement with a telecommunications or other service provider for provision of channel or platform for the provision of digital credit
- The proposed digital credit provider’s AML/CFT policies and procedures – these should comply with the AML/CFT Guidelines provided by the CBK in the Regulations
- The proposed digital credit provider’s data protection policies and procedures – the digital credit provider is required to put in place systems and policies that safeguards the confidentiality of customer personal information and transactions
- A Certificate of Registration as a Data Controller/Data Processor
- Description and evidence of sources of funds to be invested in the digital credit provider
- A corporate governance policy – requiring the digital credit provider to uphold sound principles based on ethics and integrity, good reputation and legitimacy, sound risk management and legal compliance.
- Credit Policy, code of ethics and market conduct – this is to deal with the outcry against the predatory operational measures adopted by some digital lenders. The credit policy should, among other things, set borrower credit limits in accordance with the CBK’s requirements
- The proposed digital credit provider’s pricing model and parameters
In processing the application, the CBK will also conduct the “Fit and Proper” test on the directors and significant shareholders and senior employees of the digital credit provider such as the CEO, to gauge their professional and moral suitability in managing or controlling the entity. Where the significant shareholder does not fulfil the fit and proper criteria, the CBK has powers to order the shareholder to dispose of all of his shares in a digital credit provider within a specified time. The CBK may also disqualify any director or senior employee from holding any office in a digital credit provider if they fail the test.
Should you have any queries on the licensing requirements for digital lenders, please contact
Felicia Solomon Tunje at felicia@mmsadvocates.co.ke or Allan Mzungu at mwamuye@mmsadvocates.co.ke