CBK boss Patrick Njoroge calls credit apps a “flea in the economy”

CBK Governor Patrick Njoroge during the Post-Monetary Policy Committee press briefing yesterday.

Central bank governor Patrick Njoroge has escalated attacks on digital lenders, dismissing their role in the credit market, which he sneeringly likened to a “flea in the economy.”

At the Post-Monetary Policy Committee press conference in his office yesterday, Dr. Njoroge said the digital lenders’ decision to stop lending following the outbreak of the Covid-19 pandemic is inconsequential, given that the volume of their lending is estimated at one percent of the economy. In an all-out attack, the governor urged companies to either submit to regulation or ship to the “Wild West,” where he says they belong.

Those who believe they cannot survive in a monitored sector can leave,” Njoroge said.

“I think the expectation that just because someone is lending with a cell phone they can do whatever they want… maybe they can go to the wild west, they don’t belong in a real economy there.” While unregulated digital and pure Lenders who have opened up lending to a section of the population that banks have avoided, thereby helping to deepen financial inclusion, have also been accused of charging high interest rates and using crude methods to collect their loans.

They were also accused of predatory lending, making loans to borrowers who were unable to repay them.

Unfortunately, there is no government regulation for these lenders as the National Treasury and the Central Bank of Kenya (CBK) shift responsibility for drafting the rules to the other side.

Some critics have argued that Njoroge’s tough stance on digital loan providers is anti-innovative, claiming that innovation always comes before regulation. However, Njoroge has insisted that the continued existence of digital lenders poses a major risk to the country’s financial system.

“You can’t open a kiosk anywhere without a license,” Njoroge said, noting that finance and health are the most heavily regulated sectors globally.

This comes barely a week after the CBK stripped credit reporting agencies (CRBs), as third-party providers of credit information, of the authorizations granted to lenders, effectively leaving them as digital shylocks with little means of determining borrowers’ creditworthiness.

“The withdrawal comes in response to numerous public complaints about the misuse of CIS (Credit Information Sharing) by the unregulated digital and pure-play lenders, and particularly their poor responsiveness to customer complaints,” CBK said, noting that they will no longer be submitting credit information via refer their borrowers to CRBs. The MPC, the highest decision-making body of the CBK, lowered its key interest rate on Wednesday from 7.45 percent to 7 percent, which it set on March 23. Companies under the aegis of the Digital Lenders Kenya Association have expressed their willingness to be regulated in the past.

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