MPs have proposed a raft of changes in the financial sector laws that will see among others the regulation of the cost of credit by digital lenders.
In three separate bills to be introduced by the Finance and National Planning committee, the MPs want further reforms mainly targeted towards the digital lenders, insurance sector and public finance management.
The Financial Markets Conduct Bill 2023 seeks to further reform and compel digital lenders to issue more disclosures on their operations.
“It’s a committee bill that aims at promoting a fair financial markets by providing credit access by establishing uniform practices and standards for providers of financial services,” said Molo MP Kimani Kuria, who is also the committee chairperson.
Among the proposed changes is the establishment of the Financial Market Conduct Authority and Financial Sector Ombudsman and the Financial sector Tribunal.
The authority will regulate and supervise the conduct of players providing financial products and services to the retail financial customers.
The ombudsman on the other hand will resolve complaints by customer’s and lenders.
Kuria said the bill also seeks to regulate the cost of credit by digital lenders dealing with retail customers.
Digital lenders have in the last decade changed borrowing patterns in the country, which has seen millions of borrowers turn to mobile apps for quick loans, albeit high-interest rates in some.
Many young Kenyans both with and without formal employment are at high risk of defaulting, but the committee chair says this has been occasioned by the failure by loan apps to conduct due diligence on their customers
“These people should know whom they are lending to but seem not to care much, leading some Kenyans who have no capacity to pay accessing the loans and increasing loan defaults,” added Kuria.
Ainamoi MP Benjamin Langat is further proposing the dissolution of firms whose default rate will go beyond a certain percentage.
Currently NCBA-owned mobile lending platform M-Shwari tops the list of digital lenders controlling 34 percent market share followed by Fuliza at 25 percent, KCB M-Pesa at 15 per cent, Tala at 13 per cent, Branch at nine percent and others at four percent.
However, there has been an increase in default rate in the country not only for digital lenders but also for mainstream banks.
This has led to tighter measures with digital lenders now increasing the minimum loan threshold to Sh1, 000 due to regulations from the Central Bank of Kenya (CBK), which prevented them from including small-ticket mobile phone credit defaulters on negative lists.
This decision was driven by concerns about high default rates on loans under Sh1, 000, prompting them to revaluate their ability to report defaulters to credit reference bureaus (CRBs).
The Finance committee has also revived the Proposed Insurance Professionals Bill 2023, that was rejected President Uhuru Kenyatta at the tail end of the previous parliament.
The bill seeks to provide legislative framework for regulation of insurance professionals in the sector
It will also establish the Insurance Institute of Kenya, a professional organ for insurance professionals.
The institute will regulate professional conduct of its members and maintain levels of service by sector members.
The third bill that has also been re-introduced is the Public Finance Amendment Bill 2023 that seeks to reduce the time for submissions of financial statements by public entities from three months to one month at the end of the financial year.
The bill seeks to impose penalties to accounting officers found guilty of breaching the provisions.