Court’s nod to reining in digital lenders welcome – Business Daily
FILE PHOTO | NMG
The proliferation of digital loan providers saddling borrowers with high interest rates via predatory lending practices makes a good case for the sector to be regulated.
We support the High Court’s verdict backing the new law that allows the Central Bank of Kenya (CBK) to regulate digital lenders.
The law gives the central bank powers to control the lenders following complaints from borrowers who can pay annualised interest rates of more than 100 percent.
Apart from charging high interest rates, consumers say the digital lenders have been infringing on their data privacy by bombarding contacts in their mobile phone books with calls and messages when they default.
These market practices thrived in an environment where the digital lenders were falling outside the ambit of the CBK.
Kenya had more than 500 unregulated microlenders, egged on by the rise in need for quick loans and the cutback on bank lending to individuals and small business.
This unchecked growth has the potential to hurt the economy, providing a strong case for regulation of the micro-lenders whose rates of return surpass those of mainstream bankers due to their predatory lending.
No business can survive interest rates in excess of 100 percent, meet operations costs and make a return for its owners. This is more worrying in an economy where SMEs are considered key to solving the unemployment crisis as formal jobs shrink.
Therefore, we need regulations to ensure microloan providers are not predatory and are treating retail customers fairly.