Consumer complaints against digital lenders saw a sharp increase in the year leading to June 2024, according to the Competition Authority of Kenya (CAK), marking a continued trend of regulatory violations despite stricter oversight.
Issues such as:
- Predatory lending
- Inadequate disclosure of terms, and
- Borrower harassment
remain prevalent, raising concerns about the enforcement of consumer protection laws.
🇰🇪REPORT | Majority of Kenyans Borrowed Digitally to Finance Education in H1 2024, Says Tala Survey
Speaking to Kenyan media, Tala said Kenyans’ borrowing habits remained largely the same as the last half of 2023 with only 20 percent reporting to have borrowed more in 2024,… pic.twitter.com/R9FrfRTOnw
— BitKE (@BitcoinKE) September 2, 2024
In its 2024 annual report, the CAK revealed that financial sector complaints comprised 29.5% of all consumer cases, with 197 out of the total 668 cases filed by Kenyans. This marked a significant rise from the previous year, where the sector accounted for 19.2% (100 cases) of the 521 total complaints.
The wholesale and retail trade sector followed closely, accounting for 193 cases (28.9%), up from 102 cases (19.6%) recorded in the previous year. However, digital lending emerged as the primary concern within the financial sector, surpassing traditional microfinance institutions in the number of complaints.
Digital lenders were responsible for 63 reported complaints in 2024, a notable jump from just 16 cases the previous year. This surge positioned them as the most frequently cited violators in the financial sector, overtaking microfinance institutions, which saw an increase from 44 cases in 2023 to 57 cases in 2024.
“There has been an upward trajectory in complaints relating to digital credit, particularly concerning exorbitant interest rates, lack of transparency in terms and conditions, unilateral changes to agreements, and aggressive debt collection practices – including harassment of borrowers’ phone contacts,” the CAK stated in its report.
Regulatory Gaps and the Struggle for Compliance
The persistence of these issues comes despite the enactment of the Central Bank of Kenya (CBK) Digital Credit Providers (DCPs) Regulations in 2022. These regulations were designed to curb unethical lending practices by setting clear guidelines on pricing, consumer protection, debt collection, and anti-money laundering measures.
The rapid expansion of digital lending services – fueled by the ease of access to credit – led to the proliferation of over 400 digital lenders in the Kenyan market. In response to growing concerns over privacy violations and abusive lending practices, the CBK took steps to bring digital lenders under its regulatory framework.
We Need a Law to Regulate Mobile Loan Apps in Kenya, Says CBK Governor, Patrick Njoroge: https://t.co/xwjCohBXhs @CBKKenya @njorogep @alykhansatchu #MobileMoney #MobileLoansKE
— BitKE (@BitcoinKE) March 29, 2019
However, as of October 2024, only 85 digital credit providers had obtained operating licenses, leaving the majority either in limbo or operating illegally.
LIST | Central Bank of Kenya Grants Licenses to 19 More Digital Lending Companies Bringing the Total to 51 – https://t.co/FMaKW7cwJG
— Edduhspeaks (@edduhspeaks) March 8, 2024
Challenges in Licensing and Regulatory Enforcement
The prolonged licensing process has been attributed to the stringent documentation requirements set by the CBK. Applicants are required to disclose details on ownership structures, funding sources, and compliance with data protection laws, leading to delays in approvals.
Additionally, collaboration between the CBK and other regulatory bodies, such as the Office of the Data Protection Commissioner, has extended the approval timeline further.
Kenya’s 🇰🇪 Data Protection Office to Investigate Public Data Abuse Complaints Against 54% of Digital Lenders
Overall, Kenyans sent over 1,000 complaints concerning data abuse.https://t.co/sLJsKtGevv
— BitKE (@BitcoinKE) November 17, 2022
As reported by BitKE, under the 2022 regulations, licensed digital lenders are mandated to provide full disclosure of all charges, fees, interest rates, and the total cost of credit. Furthermore, they cannot alter pricing structures without prior approval from the CBK – a measure aimed at curbing exploitative lending practices.
The Central Bank of Kenya🇰🇪 Officially Publishes Regulations to Protect Consumers from Digital Lendershttps://t.co/5mKyhSelqB @CBKKenya @dlak_ke
— BitKE (@BitcoinKE) March 22, 2022
While the regulatory landscape for digital lending in Kenya has evolved significantly, the rise in consumer complaints signals that more needs to be done.
- Strengthening enforcement mechanisms
- Expediting the licensing process, and
- Ensuring lenders adhere to consumer protection standards
will be critical in fostering a more transparent and responsible digital lending ecosystem.
As fintech continues to reshape Kenya’s financial landscape, the balance between innovation and consumer protection remains a pressing challenge – one that regulators must navigate carefully to ensure sustainable growth in the sector.
