The Central Bank of Kenya (CBK) will now set the rates charged by buy now, pay later (BNPL) companies if Parliament passes the proposed amendments to the law.
The Business Laws (Amendment) Bill 2024 deletes the definitions of digital channel, digital credit, digital credit business and digital credit provider in the Central Bank of Kenya (Amendment) Bill 2021 and replaces them with buy now, pay later and credit provider.
According to the draft law, these credit providers include credit providers that do not accept deposits, and who will be regulated by the Central Bank of Kuwait.
These are credit providers that issue either secured or unsecured loans with or without interest, asset financiers, credit guarantors, and “peer-to-peer lending under collective investment schemes regulated by the Capital Markets Act.”
The bill defines a BNPL as an arrangement whereby a consumer purchases goods or assets, whether or not collateralized by the goods or assets, and subsequently pays in instalments, with or without interest.
Under the Central Bank of Kenya (Amendment) Act 2021, the regulator is mandated to license digital credit providers (DCPs), approve digital channels through which such loans can be issued, set pricing standards for digital credit, supervise DCPs and suspend or cancel their licences.
“Section 2 of the Central Bank of Kenya Act is amended by including buy now pay later arrangements, as determined by the Bank, but does not include hire purchase agreements governed by the Hire Purchase Act,” the bill states.
Regulating BNPL companies will radically change how the fast-growing business is carried out in the country. This comes amid numerous complaints from BNPL clients about predatory lending, cries that have spilled over onto the floor of Parliament.
National Assembly Finance Committee Chairman and MP for Mulu Kuria Kimani at the time told CBK Governor Dr Kamau Thog that the committee had received complaints from boda boda operators who accused the companies of exploitation and suspicious loss of motorcycles sold to them before full repayment of the loans. .
“We strongly feel that there is a legal gap or loophole that prevents complete oversight of buy now, pay later companies by the Central Bank of Kuwait. The products they offer are not licensed as digital credit service providers,” Mr. Kimani said.
National Assembly Majority Leader and Kikuyu MP Kimani Echongwah, who introduced the bill to Parliament, says the proposed law will help remove uncertainty surrounding BNPL’s business status in Kenya.
“The new definitions also clarify that certain credit businesses such as ‘buy now, pay later’ credit services, peer-to-peer lending and asset financing are covered under the law, thus addressing the uncertainty that has existed since the law came into effect,” Mr Ichung said. “
This comes nearly three years after the Central Bank of Kuwait began regulating digital lenders, which were previously unregulated through the Central Bank of Kenya (Amendment) Act 2021.
However, this has left some creditors, such as BNBL companies, in a state of uncertainty as to whether or not they fall under the authority of the Central Bank of Kuwait.
BNPL companies have recorded a boom in recent years amid economic challenges, making it easier for consumers to purchase goods, especially household items such as electronics and furniture, and pay for them in installments.
Some of the BNPL providers in Kenya include Lipa Later, Aspira, Loop, Safaricom, M-Kopa and MasterCard.
The government also recently moved to enable the Central Bank of Kuwait to regulate rental purchase rates. Draft amendments to the Movable Property Security Rights Law, published earlier this year, sought to give the Central Bank of Kuwait control over lease purchase costs.
The amendments stated: “The Central Bank of Kuwait determines interest rates in relation to any rental purchase of goods.”
However, the business will still be organized under the hire purchase register under the Business Registration Service (BRS).
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