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Digital Lenders in Kenya Sign Code of Conduct, Commit to Responsible Lending Practices

Members of the Digital Lenders Association in Kenya (DLAK), which represents 12 major digital lenders in the country, have today signed on to the “Code of Conduct” and announced plans to adopt a self-regulatory framework and a set of shared principles to guide members.

Speaking during the formal launch of the Association formed in March 2019, DLAK Chairman and Zenka CEO Mr. Robert Masinde said that the Code of Conduct will promote ethical business practice and broadly addresses emerging consumer protection issues.

“At the heart of the Code is a requirement for consumer protection. It requires digital lenders to practice responsible lending, disclose standardized pricing, improve transparency and fairly resolve customer disputes while respecting the spirit of self-regulation and raising the bar on ethical lending,” Mr. Masinde said.

“The Code represents an ongoing effort to continually evaluate how our industry can best serve our customers, respect the efforts of regulators and set useful precedents for how digital lenders contribute to the financial ecosystem.”

As part of the efforts towards enhancing compliance, DLAK has established a Code Compliance Committee to handle cases where a member fails to adhere to the set guidelines. The committee has the power to call out signatories it finds to be non-compliant and is tasked with ensuring all members are compliant with terms against unfair contracts. Currently 13 members have signed the Code of Conduct and are working in compliance to the Code.

DLAK is also actively seeking to collaborate with the Central Bank of Kenya in enhancing compliance and addressing consumer protection issues that CBK has been working towards. “The CBK is working hard to improve compliance of non-deposit taking institutions and DLAK will work to collaborate, enhance and complement CBK’s efforts,” Mr. Masinde said.

“The Code we have signed today requires members to comply with a series of best practice principles when dealing with customers. Members who do not adhere to the Code will be publicly disbarred from the Association,” said DLAK Vice Chairperson and HF Group Chief Digital Officer Ms. Rose Muturi. She added: “We are proud to be working together to take proactive steps to bring transparency to the market, and ensure we’re doing what’s best for our customers.”

Speaking at the launch, FSD Kenya Head of Regulation Mr. Gitau Mburu challenged members to enhance transparency, self-regulation and promote ethical practices that have remained an operational and reputational challenge.

“It is clear that as new digital credit players enter the market, new innovative products are offered and new credit models develop; laws and regulations alone will not be able to address all of the consumer protection issues, members must act responsibly,” Mr. Mburu said. Adding that: “The evolving landscape of digital lending is a demonstration that households and micro, small and medium enterprises have real challenges of accessing capital and are finding the fintech industry as a growing source of short-term capital.”

“Due to this, it’s really important the fintech industry is transparent and easy to understand for customers, so they can really understand what the cost of borrowing really is, and what the penalties look like if they don’t comply.”

Overall, digital lenders said, they see a definite change in mindset towards fintech by customers. “Years ago, there was a limited understanding of the difference between digital lenders and some of the “less reputable” short-term funding options, but now there’s a growing understanding of the new players’ role in the finance sector,” Tala Regional Country Growth Manager and DLAK Director Ivan Mbowa said. “Digital lenders are a bridge to formal finance and are filling a market need, enabling us to extend high-quality financial services to underserved communities and contribute to the national financial inclusion agenda.”

Kenya has experienced technological innovation in the financial sector, especially the business of lending through digital credit. Most low-income Kenyans, before the introduction of digital credit, relied on informal lenders (shylocks) as well as relatives and friends for credit. Today, digital lenders have dignified borrowing for individuals and micro-entrepreneurs.

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