Online financial products offered by local commercial banks, will soon be tagged with a mark of approval from the Central Bank Of Kenya. According to CBK Governor Patrick Njoroge, the mark of approval will distinguish the digital lending apps that are not affiliated with commercial banks to help borrowers discern rogue online lenders from the legitimate ones.
“These products will soon be indicating that they have been approved by the CBK. This is to distinguish them from other institutions providing lending on the same platform mobile phone apps,” said CBK governor during the inaugural Afro-Asia Fintech Festival.
Unregulated apps presented three fundamental problems including lack of assurance that the consumer is not being taken advantage of, whether users’ information is secure as well as the apps being used as a front for money laundering.
In a presentation to parliamentarians last week, Dr Patrick mobile-based online lending firms should be regulated to avoid their usage as channels for introducing illegally-obtained cash into the financial system, singling out Tala, Branch and Okash, three highly-popular digital money lenders, as credit-only mobile lending institutions that could be easily used to launder illicit cash.
The most key concern for regulators being the source of funds that the institutions are lending to the public.
“It is problematic to CBK when you think of money laundering. We see a major weakness because they can upscale very quickly and we need to regulate them because they have to be right-sized since they are not using depositors’ money and they are not under prudential guidelines,” he told the Senate Committee on ICT at a hearing.
The regulator is also concerned with customer data protection by credit-only lenders, the high-interest rates or transaction fees that they charge on borrowers, multiple borrowing from different lenders, non-disclosure of pricing terms and their lack of dispute resolution mechanisms.