Digital Lending
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What does it mean?
Loans can be given and recovered through web platforms or mobile apps through digital lending. In today’s digital world, lending has become more convenient and accessible than ever before.
Digital lending is expected to grow further in the future as new lenders enter the space and establish businesses to extend their offerings. For more than a decade, Kenya has been providing digital financial services.
Responsible Lending
It is important to remember that there are certain practices that lenders should adhere to conduct business responsibly and provide a positive user experience. As part of their responsible lending practices, lenders should comply with the following:
There are several key principles that should guide responsible lending in the digital lending industry in Kenya:
Affordability: Lenders should assess whether a borrower can afford to repay a loan based on their income, expenses, and other financial obligations. This helps to reduce the risk of default and ensures that borrowers are not taking on more debt than they can handle.
Transparency: Lenders should be transparent about the terms and conditions of loans, including the interest rate, fees, and repayment schedule. This helps borrowers understand the full cost of borrowing and makes it easier for them to manage their debts.
Fair treatment: Lenders should treat all borrowers fairly, regardless of their credit history or financial circumstances. This means that lenders should not discriminate against borrowers or use predatory lending practices.
Credit education: Lenders should provide credit education to borrowers to help them understand the risks and benefits of borrowing, and how to manage their debts responsibly.
By following these principles, lenders can help ensure that the process of lending in the digital lending industry in Kenya is carried out responsibly and ethically.
Responsible Debt Collection
There are several key principles that should guide responsible debt collection in the digital lending industry in Kenya:
Transparency: Lenders should be transparent about the terms and conditions of loans, including the interest rate, fees, and repayment schedule. This helps borrowers understand the full cost of borrowing and makes it easier for them to manage their debts.
Fair treatment: Lenders should treat all borrowers fairly, regardless of their credit history or financial circumstances. This means that lenders should not discriminate against borrowers or use aggressive or harassing tactics to collect debts.
Respect for privacy: Lenders should respect the privacy of borrowers and should not disclose personal or financial information to third parties without the borrower’s consent.
Alternative repayment options: If a borrower is having difficulty repaying a loan, lenders should consider offering alternative repayment options, such as extending the repayment period or allowing the borrower to make partial payments.
By following these principles, lenders can help ensure that the process of debt collection in the digital lending industry in Kenya is carried out responsibly and ethically.
Different Government Acts and Compliance
As per the Central Bank of Kenya Act (Cap. 491) as of March 2022. PART II — LICENSING OF DIGITAL CREDIT
4 (1) A person shall not establish or carry out digital credit business in Kenya or otherwise hold himself out as carrying out digital credit business in Kenya unless that person is licensed by the Bank by these Regulations, or is a person whose digital credit business is regulated under any other written law.
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So what if you don’t have the license and you still want to do business? You can partner with a bank to offer Bank as a service under their licenses.
In Kenya, there are several government acts and regulations that apply to the digital lending industry. These include:
The Banking Act: This act sets out the regulatory framework for banks and other financial institutions operating in Kenya, including digital lenders. It includes provisions on capital requirements, loan classification and provisioning, and customer protection.
The Central Bank of Kenya (Amendment) Act: This act gives the Central Bank of Kenya (CBK) the power to regulate and supervise the activities of digital lenders. It also gives the CBK the power to issue guidelines and directives to digital lenders to ensure compliance with relevant laws and regulations.
The Data Protection Act: This act sets out the rules for the collection, use, and disclosure of personal data in Kenya. Digital lenders must comply with the act when collecting and using customer data and must ensure that customers’ personal data is protected from unauthorized access or misuse.
The Credit Reference Bureau (CRB) Act: This act establishes the Credit Reference Bureau (CRB) in Kenya, which is responsible for maintaining a centralized database of credit information on individuals and businesses. Digital lenders are required to report credit information to the CRB and must use the CRB’s services to assess the creditworthiness of potential borrowers.
By complying with these acts and regulations, digital lenders in Kenya can help ensure that their operations are carried out in a responsible and compliant manner.
Customer Service
It’s recommended that you have a customer service desk. As your traffic increases, you may need to hire a team to handle the number of tasks. For the company, customer care is the first point of contact. Creating a physical feeling in a digital environment is the main role of customer service. Customers become skeptical and fearful as a result of the uncertainty of contactless interactions.
In the digital environment, there are several channels for customer interaction, such as email, voice, social media, app reviews, and customer feedback. Compared to the traditional framework, the customer experience journey is improved. In other words, we have a fast issue-resolution timeline, quick turnaround time, service level agreement, customer journey ownership, accurate information, and accountability for our customers.
Digital Lenders Association of Kenya
In 2019 the Digital Lenders Association of Kenya (DLAK) was formed to bring together the leading digital-first loan providers and associated stakeholders to foster mutual growth in the sector.
The Digital Lenders Association of Kenya (DLAK) is a trade association that represents the interests of digital lenders in Kenya. The association was formed in 2018 with the aim of promoting the growth and development of the digital lending industry in Kenya, and of advocating for a fair and regulatory environment for digital lenders.
The DLAK works to promote responsible lending practices among its members and to educate the public on the benefits of digital lending. It also engages with regulators and policymakers to ensure that the digital lending industry is regulated in a fair and transparent manner.
The DLAK has a Code of Conduct that outlines the ethical and responsible lending practices that its members are expected to follow. Members of the DLAK are also required to comply with all relevant laws and regulations, including those related to consumer protection, data protection, and privacy.
By promoting responsible lending practices and working with regulators and policymakers, the Digital Lenders Association of Kenya helps to ensure that the digital lending industry in Kenya is carried out in a responsible and ethical manner.
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