Twelve of the estimated 500 digital lenders in Kenya have launched the Digital Lenders Association of Kenya (DLAK), a self-regulating alliance incorporated in March 2019.
The move by the 12 digital lenders who include MyCredit, Okolea and Tala is seen as a move to take cover in self-regulation in the face of the vivid public disgust in the operation of the now labelled shark lenders.
The lenders have signed on a code of conduct in an effort to address industry pain points in an effort to create sound practices for sector development.
“A vibrant and diverse digital lending sector has successfully established itself in the country and we feel the time is right to give it a voice and promote global best standards,” said DLAK Chairperson Robert Masinde.
The code of conduct
Customer protection, security, responsible lending and customer service makes up the highlights of the operators’ code of conduct seen by Citizen Digital.
The dozen lenders have for instance committed to the simplification of loan pricing calling for the separation of key lending terms to include the clear distinction between principal, interest and fees.
On the privacy of data, the alliance of digital lenders has outlined the need for the full disclosure of personal data in the underwriting process to customers in what comprises one of the key thorny issues to personal lending.
“Permission should be requested for individual sets of data that the borrower is granting access to. In the case of shared contact networks between borrowers, such as referrals, no data pre or post loan application should be shared between borrowers,” reads the code of conduct in part.
The code further touches on the more controversial nature of digital lenders to include propositions for the prevention of customer over-indebtedness and collection practices.
While the lenders are largely renowned for advancing credit left, right and center without due diligence in their assessment of risks, the code of conduct now warrants members to offer introductory loans of less than Ksh.4,000 to individuals without an existing credit bureau file while avoiding to raise loan limits drastically early in the borrower’s history.
Further, the lenders have made illegitimate the intimidation of loan defaulters to include the humiliation and shaming of customers which stretches to the disclosure of borrowing behavior to individual’s contact lists.
The code of conduct, however, comes in a little too late, with the erratic tendencies of the lenders having already irked both the members of public and industry stakeholders.
Central Bank of Kenya (CBK) Governor Patrick Njoroge has for instance been the most vocal among all having called for the purge of the digital lenders on more than one occasion.
The Governor has since watered down any self-regulating framework for the shark lenders warning of the potential abuses to the in-house mechanism to instead call for the uniform management of all financial service providers.
“Self regulation is what importance is to self-importance. There is no such place for self regulation.The danger relates to the conflict of interest; this is why you need to have regulation based on specific principles most important being the protection of Wanjiku,” noted CBK Governor Patrick Njoroge during his Monetary Policy Committee (MPC) post briefing on May 28, 2019.
Further, Njoroge doesn’t hold back on his assessment of the digital lenders equating them to the unregulated loan Shylocks who seek out predatory profits from consumers.
“If someone dips into my contact lists and sends messages to most people on my list, I would be livid,” Dr. Njoroge pulled no punches.
“Most thieves are dressed like me. I hope most of them get wiped out. They are no different from Shylocks. If they are not serving a purpose, then they should go,” he added.
Legislators have too expressed their disgust with the National Assembly ICT Committee most recently calling for the inclusion of the shark lenders to the interest rate cap regime.
Regulation of the entities has however remained in a lacuna with digital lenders seemingly falling under a no specific industry regulator to operate as they so wish.
This as the CBK finds itself constrained by its mandate that only encompasses deposit taking institutions.
Members of public have however taken matters upon themselves hitting back at the entities for misconduct.
Resolution Health Chief Executive Officer Peter Nduati has for instance most recently sued a digital lending application for its wrongful credit-default listing to seemingly open up the portal for future suits by outraged consumers.
While digital lenders largely harbor a tainted image, the entities still hold a significant portion of the Kenyan financial services sector approximated at eight percent in the recently published 2019 Financial Access Report by the CBK.
In spite of their acceleration to financial inclusion pegged currently at 89 percent, the entities have been associated with the rising level of indebtedness among members of public with the average Kenyan now holding an average six loan accounts.
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