Over 700 firms seek CBK licence amid crackdown on predatory digital lenders

More than 700 digital credit providers have applied to lend money via mobile phones, the banking regulator said yesterday.

This underscores the booming popularity and lucrative nature of mobile loans as Kenyans increasingly turn to them for financial survival. 

The Central Bank of Kenya (CBK) revealed the overwhelming interest as it announced the licensing of an additional 41 firms, bringing the total number of regulated lenders to 126.

This significant influx of applicants highlights a sector where mobile lenders are making quick cash from borrowers seeking immediate funds for daily needs, small businesses, or emergencies. 

“CBK has received more than 700 applications since March 2022 and has worked closely with the applicants in reviewing their applications,” the Central Bank said in a statement yesterday.

The latest approvals mark a substantial increase in regulated entities, following the licensing of 27 Digital Credit Providers (DCPs) in October 2024. 

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The ease of accessing credit through mobile phones, often requiring just a smartphone and a few taps, has made these loans a go-to option for many Kenyans, especially those underserved by traditional banking institutions.

This high demand fuels the rapid growth and profitability of the mobile lending industry. 

The licensing drive by the CBK was precipitated by widespread public concerns over “predatory practices” by previously unregulated lenders.

These practices included charging exorbitant interest rates, employing aggressive and unethical debt collection tactics, and the misuse of personal data. 

“The focus of the engagements has been inter alia on business models, consumer protection and fitness and propriety of proposed shareholders, directors, and management,” the CBK stated, emphasising its commitment to safeguarding consumer interests and ensuring adherence to relevant laws.

The regulator noted it had also engaged with other agencies, including the Office of the Data Protection Commissioner, during the vetting process. 

While 126 firms are now licensed to operate, CBK said other applicants are still undergoing review, largely awaiting the submission of necessary documentation. The CBK urged these applicants to expedite the process to allow for the completion of their assessments. 

The public can report unregulated DCPs to CBK via a dedicated email address, signalling the regulator’s continued vigilance against rogue operators in the booming mobile lending space.

This surge in digital lenders is largely due to many Kenyans facing challenges in obtaining bank loans for personal or business use, primarily because of insufficient collateral and credit histories.

The regulatory framework aims to bring much-needed order to a rapidly expanding but previously largely unregulated industry, which had become a source of distress for many financially vulnerable Kenyans.

A previous study showed that one in every five borrowers in the country has defaulted on a loan over a year revealing tough times being faced by Kenyans. 

According to Financial Sector Deepening Kenya, the annual digital lending market volume is estimated to range between 15.4 million and 29.6 million loans per year. It further notes that, by value, the market size is likely between Sh39 billion and Sh195 billion.