Digital lenders in Kenya are facing a tough reality: obtain a hard-to-get licence from the Central Bank of Kenya (CBK) to remain operational or die slowly without it.  Without a license, Google, in its role as a “super-regulator”, will not host their apps on Playstore. Kenyan digital lenders told TechCabal that the pace of the licencing process is an existential threat to their business. 

In 2021, CBK enacted the Central Bank Amendment Act of 2021 and began regulating Kenya’s digital credit providers (DCPs) in 2022. Following that, the apex bank established a transparent licencing process to determine the verified players in the market. After the expiration of an ultimatum in September 2022, 10 digital lenders–from a pool of 288—received their licences. So far, only 32 DCPs have received the licence, leaving more than 370 operators waiting. As these firms wait, their businesses are suffering, either from exclusion by users and investors due to their “unlicenced state”, or a restriction from the Playstore by Google, the global tech behemoth deepening its role as a pseudo-regulator of digital financial services in Africa. 

Businesses are suffering 

In a Semafor interview

last month, Ali Hussein, chairman of the Association of Fintechs in Kenya, argued that the slow rollout of the licence is detrimental to Kenya’s digital lending space. “It’s not just an inconvenience, it’s millions of dollars in jeopardy. Google should get a list of the licence applicants and ensure that their services on Play Store are uninterrupted until the central bank denies the applications,” he said, maintaining that anything contrary to this is “absolutely unfair”.

At present, Google allows DCPs awaiting their licence to submit a “proof of application”, which allows the lenders to host their apps for an extra 45 days on the Playstore. But the CBK takes about two to three months to licence an average of 11 companies. TechCrunch reported last week that Google removed hundreds of Kenyan loan apps from its store after their 45-day limit expired. But, Lorcan Cathain, CEO of Money 254, an integrated financial services marketplace operating in Kenya, told TechCabal that all DCPs that applied for licencing will be left on the Playstore. “The startups that were removed may have failed to submit a licence or the proof that they applied for one,” he said. 

The DCP licence is shaping Kenya’s digital lending market into two tiers, with the licenced operators at the top of the pyramid. The unlicenced firms may be at the losing end of the fierce competition between digital lenders in the country. They must convince users to stick with them, despite not having the government’s stamp of approval. 

In a chat with TechCabal, Brian Aleri, former senior manager of Ngao Credit, one of licenced lenders, said: “DCPs that operate without a license may not have access to important financial infrastructure such as credit bureaus, which can make it difficult to assess the creditworthiness of borrowers and make informed lending decisions. This can lead to higher default rates and increased financial risk for the lender.”

Less credit for Kenyans?

Aleri believes that unlicenced operators may eventually be forced to reduce their operations or even exit the market, which can further limit consumer access to credit. At the end of the day, fewer lenders will translate to less available loans for Kenyans. 

“The future of digital lending in Kenya looks promising, but it depends on how well lenders are able to adapt to the changing market conditions and consumer needs. This includes adopting innovative technologies, providing quality customer service, and offering fair and transparent services to consumers. In terms of investor trust, lenders who operate within the law and provide quality services are likely to attract more investment and partnerships,“ Aleri explained.

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