Ruth Rotich & Company AdvocatesREQUIREMENTS FOR LICENCING DIGITAL CREDIT BUSINESSES

INTRODUCTION

 

The Central Bank of Kenya Regulations,2022 doesn’t apply to institutions licensed under the Banking Act, the Microfinance Act, 2006, the Sacco Societies Act 2008, the Kenya Post Office Kenya Post Office Savings Bank Act, credit arrangements involving the provision of credit by a person that is merely incidental to the sale of goods or provision of services by the person whose primary business is the provision of the goods or services, entities whose digital credit business is regulated under any other written law and any other entity approved by the Bank.

Regulation 4 of the Central Bank of Kenya Regulations,2022 provides for the licensing requirements and documentation as a digital credit business:-

1. Apply to the Bank for a license in Form CBK DCP 1 provided by the regulations.

2. Certified copy of the Certificate of Incorporation.

3. Certified copy of the Memorandum and Articles of Association.

4. Notification of the registered address.

5. Certified copy of the Memorandum and Articles of Association of any corporate body that has a significant shareholding.

6. Certified copy of the constitutive documents of an unincorporated body that has a significant shareholding.

7. Description of the information and communication technology system to be used in the applicant’s operations and an independent assurance on the systems.

8. Description of delivery channels or platforms to be deployed description of, and terms and conditions of credit products and services.

9. An agreement with a telecommunication or other service provider for provision of the channel or platform for the provision of digital credit business.

10. Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) policies and procedures.

11. Data protection policies and procedures.

12. Consumer redress, mechanisms policies and procedures

13. Description and evidence of sources of funds to be invested.

14. A non-refundable application fee of Kshs. 5,000/= and subsequent annual license renewal of Kshs. 20,000/=.

15. Names and addresses of the shareholders.

16. Duly filled fit and proper forms for the directors, Chief executive officer and senior officers and significant shareholders.

17. Credit policy, code of ethics and market conduct.

18. Pricing model and parameters.

19. Corporate governance policy.

20. Certificate of good conduct, tax compliance certificate and credit reference bureau report for each of the digital credit provider’s individual significant shareholders, directors, chief executive officer and senior officers.

21. A sworn declaration signed by every officer. Regulation 8 of the Central Bank of Kenya Regulations,2022 outlines the kind of activities that may be carried out by the digital credit providers in an elaborate fashion.

This is strictly the provision of credit and any other activity approved by the Central Bank. An explicit directive is given to the effect that digital credit providers must at no particular time confer on themselves the powers enjoyed by banks and microfinance institutions by purporting to collect deposits of any nature. They must strictly restrain themselves to the business of advancing credit facilities.

CONCLUSION

 

Microfinance institutions such as Momentum Credit Limited, SMEP and so on are not limited to the strict rules of the duplum rule (limitation of the amount a bank or financial institution could recover from a non-performing loan) under section 44 of the Banking Act.

Therefore, the institution can cap as much interest of the loan taken to satisfy repayment of the loan. It is guided by the contract, which is a binding agreement between the borrower and the lender. As at now regulation 19(2) provides that digital credit providers shall be limited in what they may recover from a customer with respect to a non-performing loan.

Interest shall not exceed the principal owing once the loan becomes non-performing. Further, the Central Bank of Kenya Regulations,2022 does not apply to Microfinance institutions as they are different corporations and are regulated as so.

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