If your business offers loans without taking deposits, the message is clear: you must now be licensed and regulated by the CBK. For the first time, the Central Bank of Kenya (CBK) has been granted sweeping regulatory authority over Non-Deposit-Taking Credit Providers (NDCPs), leaving no room for ambiguity or operational loopholes.
The Business Laws (Amendment) Act 2024 establishes a strict licensing framework and compliance standards, meaning that operating outside regulatory oversight is no longer an option. Failure to comply could spell the end of unregulated lending practices, making it critical for businesses to act immediately to align with these new requirements.
From Digital Credit Providers to all Credit Providers
Previously, the CBK Act limited its regulatory scope to Digital Credit Providers (DCPs), such as mobile lending apps and online platforms. This narrow focus inadvertently created a regulatory gap, allowing certain credit providers to argue that they fell outside CBK’s authority.
Recognizing the potential mischief and the critical need for uniform regulation in Kenya’s credit market, the Business Laws (Amendment) Act, 2024 has expanded CBK’s oversight. By replacing the term “digital credit business” with “non-deposit-taking credit business,” the Act now ensures that all credit providers—regardless of their operational model—are subject to CBK’s supervision.
The following businesses are now explicitly regulated:
- Buy-now-pay-later (BNPL) arrangements
- Asset financing services
- Peer-to-peer (P2P) lending platforms
- Credit guarantee providers
- Pay-as-you-go credit models
- Any other credit-related activity classified by CBK as an NDCP
This move eliminates ambiguity and guarantees that every lending activity, regardless of how it is structured, operates under the same regulatory framework.
Non-compliance Carries Heavy Penalties
Section 33S of the CBK Act explicitly states that no person or entity may operate a non-deposit-taking credit business without a CBK license, unless exempted by law. This is no longer just a guideline—it is now a criminal offense.
Penalties For Violation
- Imprisonment for up to three years,
- A fine of up to KES 5 million,
- Or both.
This means every NDCP, whether established or new, must secure a CBK license to operate legally. The era of informal lending practices is officially over.
CBK’S Expanded Regulatory Power
The Central Bank of Kenya now wields unprecedented authority over NDCPs, enforcing stricter rules and higher standards. CBK’s new oversight includes:
- Licensing and Supervision: Ensuring all credit providers meet stringent criteria.
- Approval of Lending Channels: Regulating how loans are offered to ensure fair pricing.
- Ethical Lending Standards: Targeting predatory practices and protecting consumers from exploitative lenders.
The Ripple Effects on Credit Providers
The Act has drastically changed the operating landscape for all credit providers. Here’s what you need to prepare for:
1. Mandatory Licensing NDCPs
Must adhere to CBK’s rigorous licensing requirements, which include implementing robust governance, operational controls, and detailed reporting systems.
2. Higher Barriers to Entry
The new approval process weeds out unsound or poorly managed entities, ensuring only legitimate, well-structured players remain in the market.
3. Increased Accountability
Credit providers must adopt transparent practices, including fair pricing and full disclosure of loan terms to customers.
4. Consumer Trust and Market Legitimacy
Licensed NDCPs will enjoy a competitive edge as consumers naturally gravitate toward trusted, CBK-regulated entities.
Expert Support For CBK Licensing
Navigating the CBK licensing process for NDCPs and fintech lenders can be complex and demanding, requiring strict compliance with governance, operational, and reporting standards. As practitioners experienced in handling similar applications, we are well-versed in the intricacies of the process.
If you require assistance with ensuring compliance or applying for a license under the Central Bank of Kenya’s new framework, we are equipped to guide you through this rigorous process efficiently. Reach out to us on info@mmw.legal for guidance on tailored to your unique circumstances