Court’s nod to mastering digital lenders is welcome

The proliferation of digital loan providers burdening borrowers with high interest rates via predatory lending practices argues for regulation of the industry.

We support the High Court verdict supporting the new law that allows the Central Bank of Kenya (CBK) to regulate digital lenders.

The law gives the central bank the power to control lenders following complaints from borrowers who can pay annualized interest rates above 100%.

In addition to charging high interest rates, consumers say digital lenders have breached their data privacy by bombarding contacts in their phone books with default calls and messages.

These market practices thrived in an environment where digital lenders were outside the scope of the CBK.

Kenya had over 500 unregulated microlenders, driven by the increased need for quick loans and reduced bank lending to individuals and small businesses.

This unchecked growth has the potential to harm the economy, providing a strong case for regulating micro-lenders whose rates of return exceed those of traditional bankers due to their predatory lending.

No business can survive interest rates above 100%, meet operating costs and generate a return for its owners. This is more worrying in an economy where SMEs are seen as key to solving the unemployment crisis as formal jobs dwindle.

Therefore, we need regulations to ensure that microloan providers are non-predatory and treat retail customers fairly.