A SPOTLIGHT ON LINCENSED DIGITAL CREDIT PROVIDERS (DCPs) IN KENYA.

In what was a no-holds-barred attack, the former Governor of Central Bank, Patrick Njoroge, while speaking at the post-Monetary Policy Committee press briefing in 2022, told Digital Lending firms to either submit to regulation or to ship out to the "Wild West" where they belong. This was in response to the digital lenders' decision to stop lending after the onset of COVID-19. The Governor would further dismiss their role in the credit market, which he mockingly likened to a "flea in the economy."

A year before, On December 7 2021, Parliament had enacted The Central Bank of Kenya (Amendment) Act of 2021 effectively providing the Central Bank of Kenya (CBK) with the powers to license and oversight the previously unregulated digital credit providers.

In 2022, the Association of Microfinance Institutions of Kenya (AMFIK) challenged the Digital Credit Providers (DCP) Regulations, arguing that non-deposit-taking microfinance institutions (MFIs) should be exempt. They contended that the regulations would unfairly discriminate against them and limit their operations. They noted that they were regulated under the Microfinance Act of 2006, not the DCP Regulations.?

Additionally, AMFIK highlighted a lack of stakeholder engagement in the regulation's development. However, the High Court upheld the regulations, aligning with the Central Bank of Kenya'sKenya's stance that DCP Regulations apply to all DCPs, including non-deposit-taking MFIs, dismissing AMFIK'sAMFIK's claim of discrimination and operational restriction. The grounds raised by AMFIK included:

• The DCP Regulations would be discriminatory against non-deposit-taking microfinance institutions as other financial institutions such as banks, deposit taking microfinance institutions, SACCOs have been exempted from the DCP Regulations;
• Non-deposit-taking microfinance institutions are to be regulated under the Microfinance Act of 2006 and should not be subject to DCP Regulations;
• The DCP Regulations would cause restrictions on the activities of non-deposit-taking microfinance institutions, such as restricting them from taking cash collateral and/or engaging in other activities such as business management services; and
• AMFIK was not afforded an opportunity to participate in the stakeholder engagement regarding the enactment of the DCP Regulation.

The Court held that the DCP Regulations were not unconstitutional and reiterated the CBK's position that the DCP Regulations apply to all unregulated DCPs, including non-deposit-taking microfinance institutions. The Court made this finding despite AMFIK's argument that their services are not offered solely on digital platforms like other DCPs; hence, they should not be regulated as DCPs.

In 2024, the Central Bank of Kenya (CBK) confirmed to have received 480 applications for Digital Credit Provider (DCP) licensing. They began issuing licenses in September 2022, starting with an initial batch of 10. On January 30, 2023, an additional 12 licenses were issued, bringing the total to 22. As of March 6, 2024, the CBK has granted licenses to 51 DCPs out of the 480 applications received.

In part one of our?"Spotlight on Regulated DCPs,"?we focus on the companies that the Central Bank of Kenya has regulated as Digital Credit Providers. Our team went on a deep-dive and researched information about the licensed DCPs, their services, interest rates and commissions charged, Founders, and Management Team, among other aspects that would be revealed later, including debt collection mechanisms.