A move by Members of Parliament to propose a law that will bring all mobile loan apps under the regulation of Central Bank of Kenya has received support from experts in the financial sector.
These new rules could force these mobile lenders to disclose interest rates and transaction fees before giving loans.
“I support the move to regulate mobile loan apps if only it can protect the interest of both the innovator and the client. We are seeing a trend where there are mobile loan apps that are out to exploit their customers and this is why we need some form of regulation and control, said Chris Useki- Chief Executive Office, Stima Sacco Society Limited.
He added that Innovation is about meeting human needs which keep on changing. “While there is a danger that too much regulation could stifle growth and innovation, protecting gullible customers is not too much a price to pay,” said Useki.
There are more than 50 mobile loan services operating in Kenya and most of them operate without any formal supervision. The Central Bank regulates mobile-lending services linked to commercial banks, however, other digital lenders are unregulated.
Young people are most vulnerable to the lending platforms that are “too exploitative in their repayment terms by charging exorbitant interest rates,” said Gideon Keter, a member of the National Assembly, who prepared the proposed law. “There is need for consumer protection. These mobile loan apps have commercialized poverty.”
The proposed law seeks to expand the role of the central bank to license and regulate the micro-lenders, as well as prescribe capital requirements and is due for publishing by the end of the year,” said Keter.
Central bank Governor Patrick Njoroge has in the past termed the phone app lenders as “plain vanilla” loan sharks and called for their regulation.
“A number of mobile loan apps are almost going bust as a result of lack of regulation which has exposed them to financial risks as borrowers default and take off without trace. The regulation will therefore protect these mobile loan lenders from serial defaulters while ensuring that borrowers are also not exploited,” said Eliud Moyi, an analyst at Kenya Institute for Public Policy, Research and Analysis.
He said regulation of financial players such as the mobile loan apps assist dealers deal with moral hazards-the risk of lending to someone a lender has no clue of the credit history or loan repayment patterns. “Regulations provide standards that can be used to protect both the lender and borrower,” said Moyi.
He admits that mobile loan apps play a critical role in financial intermediation and thus the segment should be regulated to ensure maximum returns to both the borrower and lender.