On April 15, the Central Bank of Kenya (CBK) withdrew the approvals granted to unregulated online lending apps as third party credit information providers to Credit Reference Bureaus (CRBs).
Consequently, over 100 lending apps in the country closed shops in Kenya, since having access to information from CRBs acted as their only line of defense against defaulters.
The move might look as one of the best in protecting Kenyans against rogue lenders, but it is far from it. So many Kenyans who worked for the lenders lost their jobs, and many others who depended on the apps for quick loans were left stranded, since they cannot get the loans from commercial banks as instant as it is with the online lenders.
The withdrawal happened with immediate effect, catching some lenders and borrowers unaware. Several lenders now stare at losses amounting to billions that had been borrowed by Kenyans at that time, and since there might be no consequences for defaulting, they opt not to pay.
Picture this: a Kenyan had borrowed Ksh1,000 from Tala or Branch. If the lender decides to recover the loan physically, he might use more than what he lent out, meaning it won’t be viable to reclaim the money. They therefore opt to count it as a bad debt. In case there are 100,000 such people, the firm loses Ksh100 million, plus interests.
The move by the CBK was miscalculated, to say the least.
The move shows a nation which is not dynamic, which is not willing to embrace emerging trends in the modern world of business. It shows a lazy nation which does not what to change its laws to accommodate the emerging technology and business trends.
Instead of announcing such a draconian move, CBK could have engaged stakeholders and experts to formulate laws and regulations that would cater for online lending apps, so that both the consumer and the seller are protected.
The days of brick and mortar financial institutions is fast being forgotten, and everyone wants the freedom of borrowing and spending wherever they are, whenever they want, and however they desire.
Soon everything will be going digital, and if the government does not move swiftly to enact appropriate laws it will be unable to regulate the digital space.
While other nations are busy developing laws and software to regulate the digital space, Kenyan government is busy killing any business that goes beyond the known law.
This begs the question; why then do we pay MPs to legislate if we cannot write laws for emerging technological trends?
Last year, the Finance Act was amended to have online businesses start collecting and remitting value added tax (VAT) to the Kenya Revenue Authority (KRA) on the goods and services they offer. However, KRA seems clueless on how they can track and collect the taxes. All they have to do a year on is give warning, no wonder they are missing their revenue targets by hundreds of billions every year.
Our problem in Kenya is not rogue businessmen, but rather the goodwill and proper modern regulation by the government.
Our decision makers are so old-school and they cannot take advice from those who understand the modern business and technological space.
We must appreciate their expertise and what they did in the 1980s and early 90s, but they must understand that the world is moving too fast in terms of technological trends.
On the flip coin, we might assume that cartels are taking control of the lending economy in Kenya, and the move by CBK was meant to stifle competition from the online lending apps, since they were eating into banks’ market share.
Soon, we might have digital currency taking over the world business arena, and the government will be frantically trying to kill it terming it as illegal. Before that time comes, we should be developing laws to govern such, and employing the right people to oversee it.