Plan to have CBK control costs in hire purchase

Central Bank of Kenya

The Central Bank of Kenya building in Nairobi. 

Photo credit: File | Nation Media Group

The Central Bank of Kenya (CBK) could soon control borrowing costs in higher purchase deals in fresh proposals that would expand the regulator’s mandate beyond banks, microfinance institutions and digital lenders.

The proposal is contained in draft amendments to the Movable Property Security Rights Act which will also see the oversight of higher purchase agreements moved from the Hire Purchase Act that is to be repealed.

The move to regulate borrowing costs under higher purchase agreements comes amid a resurgence of the model fuelled largely by innovation and use of technology.

The licensing of higher purchase businesses shall, however, remain under the Business Registration Service (BRS), which is expected to continue issuing permits and imposing requisite conditions.

But the National Treasury Cabinet Secretary shall be allowed to make regulations on licensing of hire purchase businesses. Currently, the licensing and supervision of hire purchase businesses is carried out by BRS’s higher purchase registry, which is linked to the movable property security rights registry.

By repealing the Higher Purchase Act and providing for CBK oversight on higher purchase costs, the government says that it is seeking to improve the operations of the businesses.

The bid to have CBK’s say in higher purchase costs comes amid an ongoing Parliamentary inquiry into alleged exploitative lending practices by asset finance institutions operating under the buy-now pay-later model.

Last month, the Finance and National Planning committee began an inquiry after it noted that some asset finance institutions have been abusing the buy-now pay-later model to exploit young and low-income Kenyans, especially in the bodaboda sector through deceitful and exorbitant hidden fees, interest rates and penalties.

Similar concerns to those raised by the National Assembly finance committee resulted in digital credit providers falling in the ambit of regulation under the CBK.

Following amendments to the CBK Act in 2021, the apex bank became a regulator to digital credit providers who are now required to obtain a license.