Digital lending in Kenya; the case for regulation

Muli, Ann Kaswii
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Strathmore University
Digital lending has become an important trend in increasing financial access to Kenyans who need access to short term finances. The expansion of technological options in the country has seen the proliferation of smart phones and in their wake, an increasing number of digital lending apps. The challenge seen is that the sector has grown significantly without a proper regulatory framework, a fact that is associated with growing cases of predatory lending as competition for customer’s increase. This study sought to critically review the challenge of digital lending from a legal perspective with the intention of proposing a regulatory framework. The study relied on a variety of sources including primary sources such as acts of parliament from various jurisdictions, as well as case law. It also relied on secondary sources such as journals, online sources and legal literature discussion the issues. The main issues explored were the existing legal framework in Kenya under which digital lenders operate. Some consideration was also given to the reported practices of digital lenders especially relating to unfair trade practices. The study then focused on a benchmarking study of the regulatory framework governing digital lending in India and Nigeria, India being a more developed financial economy, while Nigeria offering an African perspective on digital lending. The key findings made included the following; First, there is no unified law or single regulator with a clear mandate to regulate the digital lending sector in Kenya, but there are several relevant regulators and laws that in total provide partial regulation of digital lending in the country. Secondly, it was determined that due to the gaps in regulation, digital lenders were infringing the rights of the mobile loan customers in Kenya, who are mostly the low income earners and with low levels of financial literacy. The third finding made in the comparison with India and Nigeria is that both countries had regulators with a clear mandate on digital lending, but in the Nigerian case, the presence of a strict regulatory climate seemed to stifle the growth of the sector. The main recommendations offered from the study were the enactment of an enabling law to establish a regulator for the sector or the amendment of existing laws to accommodate the issues arising from digital lending. The use regulatory sandboxes was encouraged to reduce the negative impact of regulation on innovation.
A Thesis submitted in partial fulfillment of the requirements of the Degree of Master of Laws, at Strathmore University
Digital lending, Regulation