The Milimani Small Claims Court has ruled that only licensed non-deposit taking lenders can file claims in the court to tame firms ‘abusing the court process’.
- In the ruling, the court also castigated six companies including Aventus Technology, Kalita Systems Debt Holding, and M-Collect Ltd for filing claims before and then abandoning the cases.
- The Small Claims Courts handle civil and commercial disputes, especially debts up to KSh 1 million; mostly catering to individuals, small lenders and SMEs.
- The landmark ruling affects 139 small claims cases filed by lenders who are not licensed by the CBK and raises questions about the state of compliance in the sector.
Kenyan laws, including a 2024 amendment, state that all non-deposit taking credit businesses must be registered by the Central Bank of Kenya (CBK). A representative of Aventus Technology told the court said that his company was ‘in the pipeline of compliance’ but was not yet licensed.
The regulation of non-deposit taking lenders was meant to tame the thriving sector, which had proliferated with predatory interest rates and unorthodox loan recovery methods. It has seen the CBK license tens of fintechs and other lenders in the last year as part of the process to bring their practices in compliance. By June 2024, the apex bank had licensed 58 digital credit providers and was still processing more than 500 applications.
The ruling is likely to affect loan recovery for the companies, and force more of them to expedite their registration with the CBK but there are concerns that the process takes too long and might their operations.
High demand for credit, stringent barriers to formal sources of credit, the high cost of living, and the largely quick turnaround have created a highly lucrative market for unlicensed lenders who are not limited by official interest rates.
