All credit-only microfinanciers with a Sh20 million capital base or lending funds will require mandatory permits by the Central Bank of Kenya (CBK) in proposed regulations aimed at handing the apex bank a wider regulatory grasp of the industry.
The CBK is expected to oversee all forms of credit-only businesses, which are currently outside its regulatory purview, including buy-now-pay-later, higher purchase, credit guarantees, peer-to-peer lending and pay-as-you-go arrangements.
All persons seeking to conduct a non-deposit-taking credit business, including digital lenders, but whose capital is less than Sh20 million, shall still be obligated to register with the CBK.
The certificate of registration shall, however, require conversion into a full-fledged licence when its capital base exceeds Sh20 million or when its borrowings or loan book exceeds Sh20 million.
“Where a registered non-deposit taking credit business, in the course of business, meets any of the following conditions…it shall apply to the bank for a licence,” CBK said in a new draft non-deposit taking credit providers regulations published on Thursday.
Non-deposit taking credit providers fell under the ambit of the CBK through amendments carried in the Business Laws (Amendment) Act, 2024, which was assented to by President William Ruto in December last year.
The change is targeted to bring all credit providers under the regulation of the CBK.
Digital credit providers (DCPs) who already require licensing from the CBK will be transitioned into the new regulations, but players who have already obtained the green light from the apex bank will not be required to apply again for licensing.
CBK Governor Kamau Thugge previously indicated his desire for an expanded mandate to oversee all credit providers, weeding out errant players who have been flying under the radar of the industry watchdog.
“We have submitted some amendments touching on digital credit providers’ clauses on the CBK Act to move away from digital credit to credit because a lot of businesses that provide credit are not always digital,” Dr. Thugge said in a June 2024 interview with Business Daily.
The Business Laws (Amendment) Act, 2024 describes a non-deposit taking credit provider as a person licensed by the CBK to carry on non-deposit taking credit business using their own funds and assets, but not including the national government or county government.
Non-deposit taking credit providers will be obligated to formulate a credit policy listing various aspects, including eligibility requirements for a loan; loan pricing including interest rates, fees, and charges; and loan limits per borrower per product.
The players will also be required to put in place appropriate policies, procedures, and systems to ensure the confidentiality of customer information and transactions.
Registered and licensed non-deposit taking credit providers, also known as credit-only lenders, shall be required to sign up to a code of conduct which seeks to ensure the sound conduct of non-deposit taking credit businesses and instil confidence in the sub-sector.
The code of conduct also establishes standards and ensures the fair treatment of consumers of non-deposit-taking credit business services and the public.
“The code shall apply to non-deposit taking credit providers, their officers, employees, and any other persons acting on their behalf. The relationship between a non-deposit-taking creditor and its consumers shall be guided by the principles of fairness, transparency, accountability, and reliability,” reads the code contained in the draft regulations.
Persons conducting a non-deposit-taking credit business will have six months from the publication of the final regulations to apply to the CBK for licensing and registration.
About 126 digital credit providers (DCPs) will be the first players licensed under the regulations, having already received the green light from the apex bank under the soon-to-be-repealed/transitioned digital credit providers’ regulations.
At least 574 digital lenders who are still awaiting CBK’s clearance will have their applications vetted against the new non-deposit-taking credit regulations.
The adoption of the regulation will bring the players under the wings of the CBK alongside banks, micro-finance institutions, and digital credit providers.
