Cash

The new CRB law and directive will affect your finances.

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How new CRB law and directive will affect your finances

What you need to know:

  • Under the CBK Act, 2021, the Central Bank of Kenya will have the power to revoke licenses of digital lenders who have been using debt shaming tactics to recover loans
  • A presidential directive banned the listing of borrowers with loans of less than Sh5 million on Credit Reference Bureaus for one year


Samuel Warutumo was at work on November 4, 2021, when he received a message on his phone about a loan he had taken with a digital lending app. "Samuel, be informed that we will report you to the CRB unless you pay your loan of Sh8,486 in full by midnight today!" A few minutes later, he got a call from his mother who had also received a notification urging her to ask Samuel to repay. Close to 20 people from his phone book were called, which culminated with a call to his boss. 

"I had defaulted on the mobile loan by three days because I was waiting for my salary," he says. This is the type of debt-shaming which thousands of digital borrowers have been subjected to by mobile lenders seeking to recover loans. But this threat now belongs to the past. This follows the new Central Bank Bill, 2021 that became law on December 7, 2021.

The new legal changes put digital lenders in Kenya under the watch of the Central Bank of Kenya. Under the CBK Act, 2021, the Central Bank of Kenya will have the power to revoke licenses of digital lenders who have been using debt shaming tactics to recover loans. 

"The bank may suspend or revoke a license by written notice to the holder of the license if the licensee (digital lender) is in breach of subsection (2A) or the conditions of the Data Protection Act or the Consumer Protection Act," the new law says. The Data Protection Act bars sharing of data with third parties without consent and gives individuals the right to be told when their data is being shared and for what purposes.

At the same time, digital lenders will now be required to seek approval from the CBK when pricing their loans and products. This may see mobile lending rates, which are currently costliest, falling. 

"With the new law, digital lenders will now set interest rates for their loans within parameters approved by the CBK. This means that the consumer will benefit as the CBK is bound to reject predatory rates," says financial advisor Eric Karanja. 

Currently, mobile lending rates in Kenya go up to 520 per cent in a year. A few of the mobile lenders' rates are as follows:

· Tala has annualised interest rates of 84 to 152.4 per cent.

· Branch has annualised interest rates of 156 to 348 per cent.

· M-Shwari, which is run by Safaricom and NCBA charges a facilitation fee of 7.5 per cent on credit regardless of the loan's duration. Its annualised loan rate is at least 90 per cent.

· The Fuliza fee is Sh1.083 per cent which translates to 395.2 per cent annualised rate.

· Okash and Opesa have annualized interest rates of at least 500.


Listing in CRB suspension effects

A presidential directive banned the listing of borrowers with loans of less than Sh5 million on Credit Reference Bureaus for one year. 

According to financial analyst Ephraim Njega, suspension of CRB listings is going to affect how and to whom loans are given. "This will hurt those it is meant to assist as people will struggle to access credit without CRBs," says Njega. 

"Digital lenders have few options of enforcing repayments other than through CRB listings. On the other hand, bigger mobile lenders have multiple recovery options," says Njega. 

"Digital lenders such as Safaricom will have an edge over the rest since they have more recovery options such as M-Pesa. This can distort competition and lead to exploitation of the borrowers." 

In October, Safaricom updated its terms and conditions for the M-Shwari and Fuliza loans that are issued by NCBA Bank and KCB through M-Pesa. "You hereby agree and confirm that NCBA and KCB are entitled in its discretion to prevent or restrict you from withdrawing in whole or in part the funds in your accounts for so long as and to the extent of the amount outstanding in respect of your loan without KCB or NCBA giving any notice to you and/or without incurring any liability to you whatsoever in that connection," the new terms stated.

Currently, all mobile lenders are run using algorithms from transactional data to determine loan limits for users. However, borrowers share personal information, including their professions and monthly earnings, when registering with digital lenders. According to the Digital Lenders Association of Kenya (DLAK), digital lenders have slashed the amount they have been disbursing to borrowers since the first freeze. According to DLAK chairperson Kevin Mutiso, out of these microloans, 55.5 per cent of borrowers took the mobile loans to boost their working capital, 24.8 per cent to cover unexpected expenses, and 13 per cent to pay school fees.

But it is not just digital lenders who will be affected. According to a cautionary note from the CBK, banks may shun lending to individuals and small traders similar to the period between September 2016 and November 2019 when Kenya capped interest rates. 


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