The Central Bank of Kenya (Amendment) Bill, 2020 was published on 19 June 2020 (the Bill), with the principal objective of amending the Central Bank of Kenya Act (the CBK Act) to allow the Central Bank of Kenya (the CBK) to supervise and regulate digital financial products and services.
Currently, there is no legal framework governing digital borrowing platforms in Kenya, which has resulted in digital and mobile lenders operating freely and digital borrowing platforms that are not classified as financial institutions under the Banking Act or the Microfinance Act operate without regulatory oversight.
This has led to multiple micro-lenders investing in Kenya's credit market in response to the growth in demand for quick loans. Claims of excessive interest rates and allegations that many of these lenders fail to provide full information to borrowers on pricing terms and consequences of defaults have led to concerns that the digital lending market needs regulation.
The Bill proposes that the CBK act as the regulator of digital financial products and services in Kenya, so as to ensure a fair and non-discriminatory marketplace for access to credit.
Under the Bill CBK would have the mandate to regulate and supervise:
- the conduct of providers of digital financial products and services;
- the conduct of digital credit providers and digital credit service providers;
- the conduct of providers of financial products and services; and
- the conduct of financial services.
Financial Products are defined to include "a facility or an arrangement through which, or through the acquisition of which, a person makes a financial investment, manages financial risk or makes a non-cash payment".
Financial Services are defined to include "credit service, financial product advice, dealing in a financial product, market for a financial product or administration or management".
Both these definitions are broad and may catch a variety of other financial services beyond lending arrangements. If the proponents of the Bill intended to limit its provisions to those involved in providing credit for financial products only (and not, for example, assets acquired by credit) this needs to be made clear.
The Bill requires discussion and approval by Parliament; however, if passed in its current form the amendments will bring the regulation and supervision of digital borrowing platforms and other financial products under the mandate of CBK.
To what extent the CBK will seek to exercise its mandate remains to be seen as the CBK will need to publish subsidiary legislation to provide for the actual regulation of digital financial products and services if the Bill is passed.
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