Technology
The digital lending industry in Kenya is growing faster than many other traditional financial sectors and in the last 10 years, it has rapidly expanded to positively impact over 8 million Kenyans monthly.
Digital lending, also known as fintech, combines the core aspects of finance with technology to reduce the cost of doing business while at the same time reaching a much larger customer base in a more efficient and effective way.
There are costs to issuing loans and the innovations in digital lending have reduced those costs from a high of Sh10,000 to as little as Sh100.
To strengthen the sector, the Digital Lenders Association of Kenya has been lobbying various stakeholders in the policy-making framework.
In the last two years, digital lenders have participated in the policy-making process initiated through a private members Bill in Parliament.
We have engaged using mechanisms set out in the 2010 constitution, such as the mandatory public participation as enshrined in Chapter 1, Part 5 Section 118. The process is yet to conclude but it is in its final stages.
On December 17 last year, the President accented to the Bill into law and on December 24, the Central Bank released the first draft of the proposed regulations as defined in the law.
The Digital Lenders Association of Kenya (DLAK) made submissions in three broad categories, namely, harmonisation with existing laws and regulations; proposed changes based on the potentially negative impact the new regulations could have on the business and consequently to the customer and industry; and proposed additions that would enable innovation while protecting the consumer.
We noted that some sections of the regulations would be dependent on the Office of the Data Commissioner and therefore the proposals need to be harmonised with the Data Protection Regulations to avoid confusion.
Regulations that affect the ability to plan due to lack of timelines and a clear feedback mechanism or regulations that try to take away the final decision-making responsibility away from the business such as product approvals will likely have high-cost implications to the business.
It is not uncommon to have a misalignment with stakeholders with some of these types of regulations due to the different roles we each have.
A regulator’s mandate is price and market stability whereas the business must deliver a return to its shareholders. This misalignment usually creates different perspectives on the same matter.
The most important regulations are those that will ensure digital lending continues to thrive. A Central Bank sandbox would be a game-changer in the region. A sandbox would allow innovative ideas to get tested within a framework. Fortunately in Kenya, we have a precedence; M-Pesa was developed within a sandbox-like framework.
This type of framework ought to be embedded in the regulation of future ideas.
Getting the regulations right is important for Kenya’s competitive advantage. We are now way ahead in several digital economy indicators and even though the benefits of those indicators are not obvious yet, we need to ensure this newfound momentum continues.
With the recent release of the Central Bank Digital Currency( CBDC) report, potential ideas on digital currencies could be piloted within the sanbox framework.
Mr Mutiso is Digital Lenders Association of Kenya (DLAK) chairperson
Source: Business Daily Africa
