CBK Amendment Bill (2020): Where Does OKash Stand on the Ongoing Debate to Regulate Digital Lenders?

Kenya needs a consumer-centric regulatory framework to protect consumers and support growth of digital lending business, concludes a comparative study released last week by Digital Lenders Association of Kenya (DLAK) and PwC.

Under this proposed regulatory regime, all non-deposit taking providers of credit to the public, regardless of their business model, would be bound by a set of consumer protection principles.

"It is our view that the CBK, having been mandated with the regulation of non-bank financial lenders, should take an approach focused on the protection of the consumer, rather than financial regulation of the lenders. As such, regulation of the conduct of the market players, with a view to protecting the consumers, should be the primary focus of the CBK," PwC Associate Director and Head of Regulatory Compliance Joe Githaiga said during the release of the report.

The move comes hot on the heels of the National Assembly Finance and National Planning Committee plan to republish the Central Bank Amendment Bill 2020 to get public opinion on issues that deal with digital credit providers following the death of Bonchari Member of Parliament John Oroo Oyioka who sponsored it.

But where do other key sector players not under the DLAK umbrella like OKash stand pertaining the proposed bill? Is it that they are opposed to the bill or in total agreement with its provisions? 

Well, to help us understand let's first get to the core basics of the bill and what it seeks to address.

Key Highlights of the CBK Amendment Bill 2020

- The Central Bank of Kenya will regulate the conduct of providers of digital financial products and services and financial products and services.

- The Central Bank of Kenya will have an obligation of ensuring that there is a fair and non-discriminatory marketplace for access to credit.

- Central Bank will be expected to license and supervise authorized dealers. 

- CBK will also formulate and implement policies that best promote the establishment, regulation and supervision of payment, clearing and settlement systems.

The bill is a private members Bill introduced by the late Bonchari MP Oroo Oyioka to address the regulation of digital lenders. Since digital lending apps do not take deposits, lenders do not need a license unlike traditional banking and microfinance institutions.

Read Also: Why OKash Welcomes the Move to Regulate Digital Lending 

The Three Key Questions

Three key questions covering three main areas, therefore, arises: 

a). What impact does the proposed regulation have on digital lenders, borrowers and traditional lending institutions? 

b). Is regulation necessary? 

c). And how do we ensure that there is financial inclusion?

These exploratory questions set the pace for a broader conversation where on August 2020 legal panelists hosted by Strathmore University's Centre for Intellectual Property and Information Law (CIPIT) were asked the following targeted questions:

Questioning the Bill's Contents

1. Digital lenders use social media and other personal data for credit scoring. Who is to regulate this? Is it the CBK or the Communication Authority of Kenya? 

2. The current CBK Bill is not a government Bill but a private Bill. Therefore, are we opening ways for the CBK to regulate? Or should the focus be on self-regulation?

3. Does the increase in digital lending mean that traditional banking has failed to serve some segments of society? In which case, how can regulation foster growth of digital lending and not stifle innovation? Relatedly, are traditional banks fighting digital lenders?

4. Is there a restriction of digital lending to digital financial products under section 2(2)(A) of the CBK (Amendment) Bill 2020? Is this narrow thinking seeing as fintech is expanding to aspects such as mortgage, savings, asset financing and so on?

5. In addressing privacy by design and language, how are we loosening the language for an average Kenyan considering that many users only look at whether they are eligible but fail to read the terms and conditions?

Submissions & Conclusion

Well, the three panelists conceded that regulation of digital lending is beneficial. Three interrelated aspects – communication, banking and lending as well as data protection - were identified as the key aspects that must be addressed when regulating digital lending. 

Regulation of digital lending must, therefore, address all these aspects through collaboration of regulators. The proposal in the Bill where CBK is to be the sole regulator, therefore, required further thought.

Panelists discussed some of the risks that digital lenders deal with. They include fraud, ability to repay loans and moral impetus (willingness to pay a loan). In their view, credit reporting, implemented through credit reference bureaus can mitigate some of these risks. 

On declaration of the COVID-19 pandemic, digital lenders were delinked from credit reference bureaus. Without access to these bureaus, digital lenders have limited means of assessing a customers ability to repay, hence complaints by some customers on deletion of their loan limits.

Issues of consumer protection requires making consent meaningful through measures such as using simple and accessible language. It was noted that the Data Protection Act should be applied to address misuse of borrower.

In conclusion, there is a need to register digital lending and OKash and a whole lots of other reputable digital lenders can't agree more to such a broad regulatory framework as put forward by researchers of the report released last week by Digital Lenders Association of Kenya (DLAK) and PwC.