Patrick Njoroge, Governor at the Central Bank of Kenya, has indicated that Kenya should look into regulating FinTech especially in the microlending sector. This is because, as Njoroge elaborated, the microlending FinTech solutions have led to "predatory lending practices."
“There’s an increase in let’s say financial-type institutions that are taking advantage of our population. In a sense what has happened is there is an opportunity by some predators and they are preying on our population,” said Njoroge at a recently held conference in Nairobi.
Kenya, being the home of the famous M-PESA mobile money solution, has seen a rise in FinTech solutions that are both homegrown and from afield. Most of these solutions have been centered around "financial inclusion" and in many cases, this involves microlending.
However, as Njoroge highlighted, some of the interest rates leave many of their customers crippled by debt for a long time as they can't pay off the principal debt. This becomes more acute as people who rely mostly on loans provided by FinTech solutions don't have many other options as they are typically unbanked.
“What I think is worrisome is a lot of products that are coming in a sort of a fly-by-night operation and you only hear about it because somebody gets burned,” said Njoroge.
As such, there is already a draft bill published by Kenya's Ministry of Finance which is up for review and comment by the public and financial industry stakeholders industry. Based on the draft bill, FinTech lenders should be required to obtain licenses from a new Financial Markets Conduct Authority and they will in turn be bound by any interest rate caps the Authority sets.
Already in 2017, 2,7 million Kenyans were reported to be in default of their loan agreements according to a report by Microsave. However, it is not entirely clear if FinTech microlenders in Kenya, and not the financial services industry at large, is responsible for predatory lending practices.