The Treasury has unveiled tougher measures against digital and microfinance lenders accused of exploiting Kenyans with excessive interest rates and aggressive debt collection practices.
While appearing before senators, Treasury Cabinet Secretary John Mbadi said that fines for violating the Banking Act have been increased from KSh500,000 to KSh2 million. He said the move is intended to enforce compliance and protect borrowers from exploitative credit providers.
“We have enhanced the penalty for violations and failure to comply with the provisions of the Banking Act and any other regulations and guidelines, from KSh500,000 to KSh2 million shillings to be dissuasive and instil discipline among non-deposit-taking credit providers,” Mbadi stated.
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Senators had raised concerns that some lenders were charging interest rates above legal limits, breaching customer data privacy, and using harsh tactics to recover loans. Mbadi clarified that while penalties will target exploitative lenders, breaches of customer data fall under the jurisdiction of the Office of the Data Protection Commissioner.
Senator Moses Kajwang’ pressed the CS on lenders whose interest charges exceed twice the principal amount. Mbadi responded that credit providers must have their pricing models approved to ensure compliance with the duplum rule under Section 44 of the Banking Act.
The Treasury, working with the Central Bank of Kenya, will also crack down on microfinance institutions offering logbook loans at inflated interest rates. Mbadi warned that some lenders deliberately structure debts to force borrowers into default, enabling them to seize and sell assets. “Now, they must operate within the law, and if they do not, they can even have their licences revoked,” he said.
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Despite calls from Senators to fix interest rates across the banking sector, Mbadi cautioned that such a move could harm economic growth. “If we control interest rates, you discourage investment in your country, and you are making your country uncompetitive, and the credit rating of your country will go down,” he said, stressing the importance of market-driven rates.
Mbadi said that the measures are designed to safeguard borrowers from predatory lending while maintaining a regulated financial environment that supports economic stability.
By Masaki Enock
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