Central Bank of Kenya (CBK) Governor, Kamau Thugge, faced intense questioning regarding the proliferation of illegal digital credit providers (DCPs) in the country.
The Senate Standing Committee on Finance and Budget, led by Senator Ali Roba, expressed deep concern over the risks posed to unsuspecting Kenyan borrowers by these unregulated lenders.
Thugge, responding to the committee’s inquiries, disclosed a staggering revelation that over 400 digital credit providers are currently operating illegally in Kenya. The committee, seeking clarity on the issue, questioned the CBK’s effectiveness in reining in these unregulated entities and safeguarding the interests of the public.
“I think now that they have been brought under the ambit of the Central Bank, I think we now have 32 Digital Credit Providers who are licensed by the Central Bank,” Thugge informed the committee, shedding light on the efforts made to regulate the sector. However, this acknowledgment did little to assuage the concerns raised by the committee members.
The inquiry was initiated following public petitions against four specific DCPs accused of imposing exorbitant interest rates, in violation of the Digital Credit Providers Regulations 2021. The committee expressed dissatisfaction with the responses provided by the CBK Governor, prompting them to grant him a fourteen-day ultimatum to furnish detailed and comprehensive answers.
During the session, Senator Tabitha Mutinda, the Vice Chairperson, focused on the issue of fraudulent activities in the banking sector. Thugge attributed the prevalence of fraudulent withdrawals to increased digitization in the Kenyan banking sector. He highlighted the collaborative efforts between the Central Bank and various banks to implement legal and regulatory frameworks, emphasizing the importance of robust internal controls to detect and prevent fraud.
Senator Samson Cherarkey raised concerns about the re-introduction of mobile to bank charges, which Thugge clarified as a measure taken in consultation with commercial banks and payment services providers. The re-introduction, according to the CBK Governor, aimed at facilitating sustainable growth in the financial sector while increasing affordability, transparency, and disclosure of fees and charges to protect Kenyan consumers.
Addressing Senator Eddy Oketch’s inquiry on predatory asset-based lending, Thugge referred to the Central Bank of Kenya Amendment Act, 2021, and the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022. saying the regulations provide a framework for the licensing and regulation of previously unregulated Digital Credit Providers, including asset-based lending companies.
Thugge acknoweldged that the Momentum credit is not a licensed Microfinance Bank. He revealed that Momentum Credit Company Limited has applied for a license as a Digital Credit Provider, but the processing of the application is pending as the institution must fulfill stipulated license requirements.