Kenya Moves to Regulate Fintech-Fuelled Lending Craze

Kenya built a reputation as a pioneer of financial inclusion through its early adoption of a mobile money system that enables people to transfer cash and make payments on cellphones without a bank account.
Now, a proliferation of lenders are using the same technology to extend credit to the banked and unbanked alike, saddling borrowers with high interest rates and leaving regulators scrambling to keep up, Reuters reported.
This week, the finance ministry published a draft bill on financial regulation which covers digital lenders for the first time. A key aim is to ensure that providers treat retail customers fairly, it said.
“We have a lot of predatory lending out here, which we want to regulate,” Geoffrey Mwau, director general of budget, fiscal and economic affairs at the treasury, told reporters.
As it was for mobile cash, Kenya is something of a test case for the new lending platforms. Several of the companies involved, including US fintech startups, have plans to expand in other frontier markets, meaning Kenya’s regulation will be closely watched.
From having had little or no access to credit, many Kenyans now find they can get loans in minutes.
George Ombelli, a salesman for a company importing bicycles who also owns a hair salon and cosmetics shop with his wife, has borrowed simultaneously from four providers over the past year.
He took small loans from two Silicon Valley-backed US fintech firms, Branch and Tala, to see what rates he would get, as well as from a new mobile app launched by Barclays Kenya in March and a business loan from Kenya’s Equity Bank.
Citing a slowdown in his business due to elections-related political turmoil last year, Ombelli said he has fallen behind on some of his payments. He fears he will be reported to one of Kenya’s three credit bureaux, jeopardizing his chances of being able to borrow more to grow his business.
“I’ve realized having too many loans is a problem,” the 38-year-old father of three said in an interview in a coffee shop in Nairobi’s business district.
He is not alone. In the last three years, 2.7 million people out of a population of around 45 million have been negatively listed on Kenya’s Credit Reference Bureaux, according to a study by Microsave, a consultancy which advises lenders on sustainable financial services.