Advertising: A person without a financial conduct license cannot put out an advertisement for the provision of credit. This also applies to building owners (billboards?), or in newspapers, magazines, radio, television. Also, lender advertisements must be truthful. They cannot be misleading by deception.
Credit Limits – cards/overdrafts: Once a credit limit is approved, a financier can’t reduce the credit limits or decline to replace a lost credit card
Credit Reference: No release of credit reports to unauthorized people
In-Duplum: There is also roundabout way of reintroducing the in-duplum rule. There is a clause that if a loan goes into default, the interest, fees, and other charges to be repaid cannot exceed the balance of the loan on the day it went into default.
Insurance: Loans cannot require a borrower to get insurance from a specific company.
Guarantors: The new laws protect guarantors and requires that they be made aware of all clauses in loan contract before they give guarantees, and with no variation to guarantor terms allowed. This is probably inspired by one guarantor and default dispute involving a cousin of the President that has seen over a dozen cases litigated in several courts over 25 years.
Pre-Receivership Management: The Central Bank of Kenya (CBK) can appoint a person to assist an institution to implement its directives when the CBK believes a bank or its officers are not in compliance with the act. The new law provides tools to assist troubled banks without shutting them down, and CBK can also order some shareholders to wind down their interest in institutions within a specific time.
Spam messages? Bank shall not communicate marketing messages to customers unless the customer loan agreement authorizes it.
Statements: Requires all borrowers to be given term sheets before signing for loans, and a copy of the loans contract afterwards. They are also entitled to a free statement every six months and other copies within ten days of a request.
Variations:loan agreements shall not have clauses to vary interest during the loan, or be based on a different rate other than the reference rate of the lender.
Wide Regulation: The new laws will apply to all providers of more than fifty loans and issuer of loans have six months to obtain the new licenses. What of loan apps?
Whether this new law which cracks down on unsavoury banking and consumer finance and behaviors will ease out the 2016 interest rate capping law while assuring parliamentarians who championed the setting of maximum interest rates that bank behaviour will be better-regulated remains to be seen. Also if the clauses will help borrowers who have shifted to other more expensive lending platforms regardless of the consumer finance terms and interest rates charged there.
But the bill also creates a host of new financial regulators including; (i) a Financial Markets Conduct Authority (ii) Financial Services Tribunal (iii) Conduct Compensation Fund Board (iv) Financial Sector Ombudsman (v) an Ombudsman Board who may trip over other existing financial regulators.The bill is in the public participation stage and interested persons can send in feedback on its clauses to ps_at_treasury.go.ke before June 5.
It elicited a lot of comments on the cost of finance offers to Kenyans, since an interest capping law passed in 2016 that restrict banks to lend at a maximum of 14%, the lack of regulation of app loans who may be taking advance of Kenyans by charging usurious rates etc. It also led to a mention of a research report from Micro Save about the digital credit landscape in Kenya that was shared by one of the authors.
The Microsave Report (PDF) titled “Where Credit Is Due: Customer Experience of Digital Credit In Kenya” had lots of insights. It was drawn from feedback from 1,009 farmers located in 50 villages, equally split between Central Kenya and Western Kenya, and also with an equal number of men and women in the study.
At the end of it, the report makes some recommendations to the Communications Authority of Kenya and the Central Bank of Kenya – such as to control the type of messaging sent by text to consumers, and to require app loan companies to share information and to list all defaulters, respectively.
Habits of Borrowers
There is a preference for Chama’ s, SACCO’s and M-Shwari as a source of funding. App loan amounts are too small for significant investments.
Majority of the customers took up loans to smooth consumption, emergencies or to boost business.
They don’t understand terms and conditions of app loans and they don’t understand credit reference.
There are three types of borrowers: repayers (who pay loans on time), defaulters (who don’t understand the consequences of being listed), and jugglers who take both traditional and app loans – but if they are financially stretched, they are more likely to repay the traditional loans.
Customers have learned to game the system through timely repayment of loans and juggling multiple borrowers.
There is no extra “PIN” required to request and withdraw an app loan and some family members have done this in secret leading the phone owner to default on a loan.
Digital credit usage doubled in Kenya between 2015 and 2016, with awareness and usage of digital credit by far lower in rural Kenya.
Digital credit, which offers privacy, is replacing shop credit and family/ friends as financiers.
The simplicity of the loan application procedures matters; too much information requested or if there are too many variables that make it confusing, makes potential borrowers drop off.
Download a loan app or use USSd
App usage is rather low – and this probably related to lower usage of smartphones as their batteries rarely last a full day as compared to cheaper feature phones that retain battery charge for several days of use.
Phones are mainly used for money transfer, deposits, and withdrawals. There is little usage to get information or to browse the internet
64% of respondents in the survey had a basic phone (57% in 2015). Smartphones were 14%, growing slightly and off-setting feature phones which declined slightly to 26%.
Loss of a phone may result in a borrower defaulting on repayment.
Credit Reference Bureaus
Formal lenders require clearance from a credit reference bureau (CRB) which costs $22 (i.e Kshs 2,200) and that may exclude borrowers from formal finance. App loans don’t require this, e except that borrowers have not been black-listed.
One concern is there is little understanding of credit reference bureaus, and of channels for redress of any disputes.
Not all fintech’s report loans to credit reference bureaus.
App loan costs
High loan/interest charges are not a concern as they are comparable to other informal money lenders
At the time of the survey, M-Shwari issued 62 million loans (worth Kshs 1.3 trillion), while Equitel and KCB about 4 million each. In comments to accompany the release of their 2017 bank results last month, KCB had 13 million mobile customers, Equity Bank has 12.1 million, while a CBA statement noted that the bank also serves 33 million mobile savings & loans customers, in East Africa, in partnership with mobile money operators.
Yesterday an agreement was signed to conclude the transfer of 75% of the deposits held in Chase Bank that was placed under receivership in April 2016, to the State Bank of Mauritius (operating as SBM Kenya), with the balance remaining at Chase (in receivership) that is being managed by the Central Bank of Kenya (CBK) and the Kenya Deposit Insurance Corporation (KDIC).
The agreement enables customers of Chase Bank to immediately access 25% of their deposits that will be placed in current accounts at SBM, and another 25% that will be placed at savings account at SBM that will earn 6.65% interest per annum. The balance of funds being transferred from Chase will be placed in fixed deposits at SBM that mature over three years with one-third becoming available to Chase depositors on the anniversary date of the agreement for each of the next three years, in what CBK states this represents a substantial resolution of for the depositors of Chase Bank.
SBM Kenya is happy to announce the conclusion of the acquisition of certain assets and assumption of certain deposits with relation to Chase Bank. We're looking forward to building great relationships with all our customers. pic.twitter.com/tzpAlTihWe
SBM Kenya is part of SBM Holdings that is controlled by the Government of Mauritius and has $5.8 billion assets and is the third largest company on the Mauritius stock exchange with a market capitalization of $680 million.
Yesterday, officials from the Central Bank (CBK) and the Kenya Deposit Insurance Corporation (KDIC) met depositors of Chase Bank too outline the way forward following the offer deal between the State Bank of Mauritius (SBM) and the CBK for the acquisition of selected assets and liabilities of Chase Bank that is still in receivership.
From a Kenyan magazine issue – The Weekly Review in September 1985.
The Receiver & Manager of Kenatco offered for sale the business and assets of the two businesses – haulage and taxis, either together or separately as going concerns. This meant the businesses were operating, and receiver/managers are usually appointed by financial institutions to take over what they see as struggling businesses that are having trouble paying their bank debts, but which could be turned around with better management. Banks do this before the businesses shut down completely. The Kenatco businesses were:
Haulage Comprising: 85 haulage trucks of various makes including Mack, Fiat, Mercedes, Leyland, and Volvo and 90 trailers of various makes including Vibert, York, and Miller.
Taxis: comprising 79 Mercedes-Benz 200 Saloon Car Taxis – petrol and diesel-powered.
The two businesses shared land including two leasehold plots – at Likoni Road, Nairobi (5.9 acres) and Changamwe Industrial Area, Mombasa (7.9 acres). Also on sale were service & administration vehicles, workshop plant & equipment as well as office furniture & equipment.
A document giving full particulars of the business and assets for sale was made available and could be obtained at a cost of Kshs 300/ – (refundable in the event of a successful purchase of the assets) from J .K. Muiruri, Joint Receiver and Manager, Kenatco Transport Company, Ltd., Alico House, P.O. Box 44286, NAIROBI Tel. 721833.
Offers were to reach the Receivers and Managers by 30th November 1985, and conditions were that the Receivers and Managers did not bind themselves to accept the highest or any tender for the businesses, and offers for individual assets would not be entertained.
A separate notice was also issued for the sale of other assets of Kenatco – which were surplus vehicles, equipment and scrap items that were not part of the “going concern” sale. The assets were located in two towns with offers due on October 19, 1985, and the receivers & managers described them as:
Yamaha motorcycle 100cc KTD 207 (1979), Boss forklift KND 686.
The scrap items included 468 tyres, 141 batteries (1979), 48 oil drums and 7 tonnes scrap metal (1973).
Other Kenatco articles:
Excerpt about the company: KENATCO, a cooperative with 9,000 members was very successful with profitable routes to Zambia, Angola, and Rhodesia until East African problems led to them not being allowed to carry heavy vehicle freight through Tanzania, and that government’s detention of one-third of their fleet.
This article gives the background and history of Kenatco. The Kenya National Transport Co-operative Society, as it was named in 1965, was the first transport business society in Kenya…The Kenatco pioneers had a big dream. So big, that they not only wanted to go into the haulage business, but also to buy some tourism boats and a plane to serve the local tourism market.
See the Hansard from Kenya’s parliament on 26 November 2008 that describes how the Kenatco receivership came about.
Kenatco is still under receivership. In 2016, Receiver Manager John Ndung’u said that finance costs are driving the company into losses, even though it has been making an operating profit since 2002.
Kenatco still exists as a Kenatco Taxis Ltd. a fully fledged government parastatal wholly owned by ICDC. It is Kenya’s leading, most reliable value-for-money taxi company, with a clean and modern fleet, efficient back-office infrastructure, on-the-road back up services, for that comfortable and safe drive, pick up and drop off at whichever location within Kenya.