Digital lenders to provide full disclosure of debt collection practices in new proposal

One of the proposals involved a requirement for all digital lenders to provide full disclosure of loan terms, charges, debt collection practices and handling of personal information to prevent abuse. 

This was part of the submissions made by former lawmaker Lewis Nguyai who appeared before the Departmental Committee on Finance and National Planning during the public participation stage of the Business Laws (Amendment) Bill, 2024. 

The bill proposed by Treasury seeks to improve regulations that govern manufacturers, investors and consumer protection. 

Nguyai argued that the digital lenders capitalise on placing high interest rates on loans without providing the consumer adequate information beforehand.

He noted that customers end up taking loans without understanding the consequences of the borrowing arrangement. 

“There have been an increase of cases of borrowers being arbitrarily deprived of their property and entering into unconscionable and unfair borrowing arrangements which are characterized by exorbitant, punitive and excessive interests rates that do not give material disclosure,” he stated. 

Nguyai's proposal was welcomed by the MPs who highlighted the need to curb rogue lenders from preying on unsuspecting victims. 

“This proposal is very welcome. What we are trying to do is to anchor digital lending practices in law so as to address rogue lenders,” Kigumo MP Joseph Munyoro said. 

His remarks were echoed by Committee’s Vice Chairperson Benjamin Langat who stressed the need for creating order within the digital lending sector. 

"People who cannot get loans from banks run to digital lenders who have turned out to be very exploitative. There's need to regulate these digital lenders to cushion such people from exploitation," Langat pointed out. 

The latest data from the Digital Financial Services Association of Kenya (DFSAK) showed that digital lenders serve over 8 million Kenyans and lend out between Ksh.10 billion and Ksh.15 billion monthly. 

To regulate the space, the Central Bank of Kenya (CBK) introduced a framework to guide and approve licence to the lenders who are mandated to submit applications. 

This has, however, posed a concern for Kenyans as unregistered digital lenders are still in business despite having pending applications.