We should learn from digital lending best practices

Friday, October 16th, 2020 00:00 |
Mobile phone technology.


Over the last decade, technology has significantly changed how Kenyans gain access to credit.

Notably, more people are financially included and can access short-term loans as low as Sh500 with a tap on their phones and sort out emergencies as fast as they come.

Every day, we see more Kenyans previously excluded from formal financial services able to access affordable credit.

This progressive transformation has been necessitated by growth in digital lending that continue to record a rise in number of  providers to complement commercial banks by unlocking credit needed to power economic growth.

As we grow in fintech, like a two-sided coin, we celebrate wins but face new challenges. 

To ensure Kenyans reap from fintech growth, we must endeavour to foresee challenges and find effective ways of dealing with emerging issues especially around consumer protection, innovation and competition in the digital ecosystem.

Therefore, regulating the sector with appropriate rules becomes apparent. Digital Lenders Association of Kenya has already identified the need to implement some regulations over and above the current self-regulation enforced. 

While there is an expectation for the industry to become even more professional and evolve past though its start-up phase to a more mature growth phase, we need to learn several lessons from different developed countries, pick and adopt International best practices that will support growth of digital lending and bolster financial inclusion over the next phases of growth.

These regulations should create a level market environment to help both traditional and digital lenders play a complimentary role to ensure small business owners and consumers access credit and other more diverse products that could be introduced to the market.

The UK and US markets can offer a better view on regulatory framework, which we can adopt and customise for developing market.

In the UK, considered to have Europe’s most developed financial market and one of the biggest hubs for financial innovation globally, the Financial Conduct Authority (FCA) regulates among others non-bank lenders and digital financial providers. 

It is worth noting that FCA was established in 2013 during a makeover of the financial system regulatory framework to cope with the challenges of the 21st century and disruption taking place in the financial market. 

FCA’s key roles include protecting consumers, keeping industry stable, and promoting healthy competition between financial service providers. 

With FCA’s role and the UK government on support for financial innovation  with a pro-business approach has nurtured innovation and more competition in the country’s financial sector. 

It has also increased access to financial services and put pressure on old incumbent players to start innovating and offering better services to consumers.

Digital lending proposes numerous substantial enhancements relative to traditional credit, conspicuously large reductions in transactions costs, near instant loan approval and pay-out, and an extension in the consumer base resulting from using non-traditional records to create credit scores.

We understand that coming up with progressive regulations is not a day’s job, we encourage an all-inclusive engagement to help address grey areas and bottlenecks that may impact negatively on growth of the sector. 

A good regulatory framework should be one that facilitates growth and finds balance between the interest of different stakeholder groups . -The writer is the CEO of Zenka Finance

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