MasiboLaw

By Meshack Masibo and Maxyn Chepkorir

A digital credit provider refers to any entity that offers credit services primarily through digital channels such as mobile phones or online platforms. These include companies that use USSD lending options and those linked to the SIM toolkit, like MShwari and KCB Mpesa. However, many companies still wonder if the services they offer fall under digital credit services that require a license. 

The case of Association of Micro-Finance Institutions Kenya (AMFIK) vs The Central Bank of Kenya & 3 others (Constitutional Petition E008 of 2022) [2022] KEHC 13053 (KLR) sheds light on who can be referred to as a digital credit provider. This is a stellar example of an attempt at distinguishing what institutions are subject to oversight by the Central Bank of Kenya.

Here’s the gist of this, the high court made a decision that ruffled some feathers. They quoted Section 59(2) of the Amendment Act which brought all credit providers not regulated under any other written law under the umbrella of the Digital Credit Providers Regulations. Some organizations like banks, microfinance companies, and sacco companies were in the clear since they are licensed under different acts. Non-deposit-taking microfinance businesses were stuck in an odd spot because they were not yet covered by the Microfinance Act, so guess what? They were categorized as digital credit providers in line with the regulations. 

Now AMFIK (the petitioner) was not pleased with this since they noted that their members, which include non-deposit-taking microfinance institutions, will now be required to get licenses under the Regulations. They claimed that their members would be treated unfairly by essentially classifying them with digital credit providers. This would restrict their activities or completely close them down, negatively affecting their businesses. 

AMFIK pleaded that, in contrast to digital credit providers, who only offer credit services through digital channels and are prohibited from accepting cash collateral due to the nature of their business, it is appropriate for members of AMFIK in the non-deposit taking microfinance business to be properly regulated under section 3 of the Microfinance Act.

This petition was dismissed and the high court reiterated how it was evident that parliament intends to place all unregulated digital credit issuers, including AMFIK members, under the control and oversight of the CBK. As a result, the court said that AMFIK was incorrect to seek now exemption from the Amendment Act and the DCP Regulations, which were passed and/or approved by the National Assembly in the course of its legitimate exercise of legislative authority under Article 94 of the Kenyan Constitution of 2010.

Therefore even though an institution provides additional services like AMFIK which provides financial education, and business management services among others, these additional services do not exempt their unregulated members from being regulated under the Digital Credit Providers Regulations.  If you’re giving out digital credit and you’re not regulated elsewhere, you are required to get a Digital Credit Provider Licence.

The writers are lawyers who specialize in offering legal services to people in technology, you can reach them through info@masibolaw.co.ke