The establishment of the Digital Lenders Association of Kenya (DLAK), in June 2019, came at an opportune time, to help in the regulation of the digital lending sector.
Over the last few years, mobile loans have become an alternative source of capital for Small Medium Enterprises (SMEs) as well as individuals, without the headache of a collateral. A good credit history was enough to be granted a loan.
Since it was a new space, regulation at first was a challenge, but as they took root, it was necessary that the playing field was streamlined to ensure that there are no rogue lenders taking advantage of the citizens.
Within the short term of its existence, DLAK, the body created by lenders to ensure self-regulation has been able to come up with a raft of measures that have ensured only lenders who meet certain requirements are listed with them.
As the body takes root, and entrenches regulation in the sector, DLAK’ acting spokesperson Kevin Mutiso on how they have helped transform digital lending in Kenya.
HOW PROACTIVE HAS DLAK BEEN IN PROTECTING KENYANS FROM THOSE DIGITAL LENDERS THAT MAY TAKE ADVANTAGE OF KENYANS TO EXTORT MONEY AND DATA FROM THEM?
DLAK members abide by the strict entry and exit rules regarding data privacy (do and don’t instructions).
Data is being used during the verification process as short-term loans are not collateralised, and the lenders must use alternative ways to create their credit behavior models and support financial inclusion for customers that do not have a Credit Reference Bureau (CRB) credit score.
Our goal is to collaborate closely with Central Bank of Kenya and the national treasury to ensure that we protect the consumer, find win-win solution for taxation and do our part in assisting them in maintaining financial stability. As DLAK is a great source of the aggregated data, its contribution can be a great aid to the aforementioned institutions, especially at a micro-sector policy level.
WHAT IS THE WORKING ARRANGEMENT WITH THE CENTRAL BANK OF KENYA AND THE NATIONAL TREASURY?
Treasury is responsible for digital lending and under the medium-term plan III (2018-2022) there is a pillar for digital finance flagship project which DLAK has provided input to the steering committee responsible for drafting a digital finance policy.
IS IT TRUE THAT ANYONE CAN COME INTO THE MARKET WITH AN APP AND START LENDING?
It is actually not that easy to start operating in this market. As discussed before, banks already control the biggest part of the digital loans market while the remaining part lies in the hands of non-deposit taking MFIs, which are financial institutions that operate under a regime of no-objection letter from CBK.
There are additional barriers centered around the size of investment that needs to be done into systems, infrastructure, employees, marketing and legal setup.
A professional Fintech company knows that this investment goes into hundreds of thousands of dollars, it is definitely not a business for everybody. Other than that we recommend customers to check the professionalism of a digital lender by checking the DLAK website and look up whether the app belongs to a member company. Lending did not begin with the digital era.
Digitalization has only enabled its ease of reach. That’s why it is so essential to regulate the market, set strict rules and create formal frames for the lenders to eradicate those who are not willing to follow them. Customer protection is the paramount goal in this context.
WHY DO SOME LENDERS DEMAND A FEE FOR REGISTRATION?
No one among DLAK members charges registration fees. So one needs to be cautious any time an app asks for registration fees.
THERE SEEMS TO BE DUPLICITY OF VARIOUS BRANDS COPYING EACH OTHER, HOW CAN YOU PROTECT YOURSELVES FROM BRAND THAT EXPLOITING THE IGNORANCE OF KENYANS?
Precisely this is why DLAK exists. The association intends to weed out such companies who duplicate the brands of the registered members. DLAK’s objectives and measures are strictly defined and focus on broadly defined customer protection through clients’ education, and lenders’ verification and certification. DLAK will go to great lengths to eradicate any malicious practices from the market and take legal actions against them
SOME APPS DEMAND PERMISSION TO READ SMSs, CALL LOGS, CONTACTS, AND GPS AND IF ONE FAILS TO ALLOW ACCESS HE IS DENIED A LOAN. WHY?
Digital loans are given without any collaterals which is considered one of their advantages, and thus lenders must use alternative ways to create a credit behavior model for their customers and support financial inclusion for Kenyans that do not have a CRB credit score.
In a report by CreditInfo, it is stated that digital financial services that do not require traditional forms of collateral are helping to narrow the gender gap in financial inclusion among others.
A STUDY BY THE GOVERNMENT,FINANCIAL SECTOR DEEPENING (FSD) AND MELINDA GATES FOUNDATION SUGGEST THAT DOZENS OF THE APPS OPERATE WITH VIRTUALLY NO REGULATORY CONTROLS. WHAT IS DLAK DOING TO PROTECT AND GUIDE CUSTOMERS?
According to a CreditInfo done on December 3, 2019- Kenyan banks control the biggest part of the digital loans market pie, leaving the remaining part to non-deposit taking MFIs that deploy high-end technological solutions to service their customers (Digital MFIs/Fintechs).
The paramount purpose of forming DLAK was to create a body that would represent the digital MFI market in discussions with regulators and decision makers in Kenya and to bring to the table best practices for the industry from around the world.
DLAK is to serve customers. That’s why we have created a code of conduct – a set of guidelines for reliable and trustworthy lenders. To become DLAK member, the company must comply with these regulations and to implement it in its daily business.
This means that such a company is trustworthy and reliable, and the customers can trust the company and borrow money hassle-free. The easiest way to check whether an app is trustworthy is to check whether the company is listed on DLAK website.
THE REPORT FURTHER CLAIMS THAT HALF OF THE APPS CANNOT BE ACCESSED BECAUSE THEY ARE NOT STABLE, OR THEY ASK FOR SIGNUP FEE, AND SOME DISAPPEAR AFTER WHAT LOOKS LIKE THEY ARE HARVESTING DATA. HOW CAN DLAK PROTECT KENYANS?
For the time being, there are 11 members of DLAK – companies that have been meticulously verified and certified as legitimate. We are in the process of verifying further memberships applications.
DLAK’s role is to provide customers with a list of trusted lending companies they may borrow from. We want to draw Kenyan’s attention to the fact that for their financial safety, they should always verify if the lenders they intend to borrow from are listed in DLAK’s website before they share their private information with them.