Digital lenders will no longer give loans to new customers outside their existing database of borrowers, citing their continued freeze out of the credit reference bureaus (CRB).

Current rules bar the unregulated digital lenders from blacklisting defaulters, and they can only access a borrower’s credit information from a CRB with the express consent of the borrower and Central Bank of Kenya (CBK).

Digital Lenders Association of Kenya (DLAK) chairman Kevin Mutiso said its members will now only lend to repeat customers on their own databases, a move that is likely to deny a majority of borrowers short-term loans.

The lobby represents 25 digital lenders, including Tala, Branch, Okolea, Zenka, and Stawika.

Mr Mutiso said they have a cumulative three million active borrowers.

The self-imposed ban will also limit growth, given that individual firms are unlikely to open up their database for rivals to check on potential borrowers.

The Data Protection Act bars sharing of data with third parties without consent and gives individuals the right to be told when their records are being shared and for what purposes.

‘’We will just set new rules and say no to new customers because if we are not able to access the bureau, we can’t know the record of a new customer,” Mr Mutiso said.

“We can’t keep having CRB used like a toy…because lenders are not allowed to give positive or negative information to CRB.” The unregulated digital lenders have been barred by the CBK from blacklisting defaulters since April 2020, following numerous public complaints about misuse of credit information sharing and poor responsiveness to customer complaints.

Further, they had listed many defaulters of amounts below Sh1,000, forcing the CBK to issue guidelines that only defaults above Sh1,000 will be shared with CRBs and borrowers who had been blacklisted for lower amounts to be cleared unconditionally.

The freezing out of digital lenders from CRBs saw them cut lending by half from about five million customers and loans disbursed to an average of Sh1.8 billion a month from Sh4 billion.

‘’The challenge of unpredictability and politicisation of our industry will scare investors, make us not want to come up with new products or get new customers or leave the industry, taking the country back to 20 years,” Mr Mutiso added.

The lenders will, however, be allowed back into the CRB system should Parliament pass the Central Bank of Kenya (Amendment) Bill, 2021, which looks to bring the digital loan providers under the regulatory umbrella of the CBK.

The Bill has already received the approval of the National Assembly committee on Finance and National Planning, paving the way for debate.

Once digital lenders fall under the watch of the CBK, the regulator will be able to supervise their use of credit information sharing like banks, saccos and other entities currently using the system.

The regulator estimates there are more than 100 unregulated digital lenders operating in the country.

Even if the Bill is passed, the digital lenders are still unlikely to benefit much from being allowed to list defaulters in the short term following the suspension of blacklisting of defaulters with Sh5 million loans and below.

The listing moratorium is set to last until September next year.

The CBK has already warned that commercial banks could restart rationing loans following the directive, especially to individuals and small traders at a scale last witnessed between September 2016 and November 2019 when Kenya capped interest rates.

Bankers said a lack of credit reference information could contribute to soaring costs of loans and stall lending to businesses due to incomplete borrowers’ information.

During the rate cap era, individuals who could not access small loans from banks sometimes turned to the unregulated mobile lenders from cash, helping fuel their rapid growth in the period.

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