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Regulate digital loans to protect consumers from preying fintechs, urges analyst

Author: Angela Mutungi, Business Daily (Kenya), Published on: 16 May 2019

"Regulate digital loans to protect consumers from preying fintechs"

Regulating the digital lending industry makes consumer and macroprudential sense. Over-indebted Kenyans juggling and struggling to repay multiple digital lenders is the grim reality. But regulatory intervention cannot and should not be driven by irresponsible or poor borrowing choices. However, if unfair and predatory digital lending practices have significantly contributed to over-indebtedness of Kenyans, there is a strong case for regulation. Kenyans must always have recourse to a competent regulatory authority that can uphold and enforce responsible lending and consumer financial protection. The absence of this in the digital lending industry continues to expose Kenyans to unethical behaviour...

Regulation will ensure disclosure of all risks facing these digital lenders so that their viability and that of their operations can be accurately determined and mitigating measures put in place. It is the purview of Kenyan regulators to proactively monitor for risks to the financial system and stress-test its ability to withstand duress. There cannot be any blind-spots that cloud or impede their view of the vulnerabilities and risks to the Kenyan financial system. Or that could place contingent liability demands upon the central bank’s role as lender of last resort. Additionally, if the Kenyan financial system is potentially exposed to financial market contagion through foreign digital lenders, this risk should not be downplayed. Oversight of the digital lending industry will ultimately support the macroprudential approach in place to the Kenyan financial system. While it is a legitimate concern that oversight could stifle innovative fintech digital lending, the risks from leaving this industry unregulated are too significant to ignore. Never mind that the industry itself has so far shown little interest in self-regulation. The ramifications of consumer over-indebtedness are severe and timely action is required.

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