JMK Partners Advocate


The current reality in Kenya is that the need for quick capital for individuals and small businesses has been on the rise whereas access to credit facilities has been on the decline. Consequently, in recent years, we have seen an upsurge of non-conventional lenders, inclusive of digital lenders and shylocks, in Kenya. The upsurge has been enabled by the less paperwork, less or no security and ‘quick fix’ elements of non-conventional lenders, which have attracted common citizens, including households, Micro and Small Enterprises. Unfortunately, as at date there is no law regulating these unconventional lenders and as expected the industry is bloating with malpractices such as exorbitant interest rates, misuse of credit information, data privacy infringement and barbaric debt collection methods. Additionally, the targeted market of these non-conventional lenders lack financial literacy and have thus found themselves in a situation of over accruing debts. As a result, many Kenyans continue to fall victims to these malpractices without a remedy.

Fortunately, though the process has been painfully slow, it is important to note that there has been legal initiative to provide regulation to the aforesaid industry. In 2018, the National Treasury of Kenya drafted and proposed the Financial Markets Conducts Bill, 2018 (FMC) with the objectives of promoting the regulation and supervision of the conduct of non-conventional lenders and enhancing a fair marketplace for access to credit as well as protection of consumers of financial products and services offered by non-conventional lenders. The bill draws from the Twin Peaks model of financial regulation that was pioneered in Australia and has since been adopted in other jurisdictions such as the United Kingdom, South Africa, and the Netherlands, which model separates financial regulation into two broad functions: market conduct regulation and prudential regulation. 

Amongst the key proposals of the Financial Markets Conducts Bill, 2018 were:

  1. establishment of the Financial Markets Conduct Authority (FMCA) to licence the unconventional lenders and prescribe the chargeable interest rates from time to time;
  2. requirement for there to be a contractual written agreement between a non-conventional lender and a borrower setting amongst other things the interest rate chargeable;
  3. requirement for a non-conventional lender to provide a statement of account to a borrower indicating the amount advanced, the amount that has been paid and the amount required to clear the outstanding balance;
  4. establishment of the office of an ombudsman to handle complaints between consumers and non-conventional lenders;
  5. establishment of a Financial Services Tribunal with the mandate to review contentious decisions arising from the implementation of the Bill;
  6. establishment of a Conduct Compensation Fund for the purpose of facilitating compensation of the borrowers who have suffered losses as a result of contravention of the Bill by the non-conventional lenders; and
  7. a prescription of various offences and penalties to enhance its enforcement.

Unfortunately, as promising as this Bill was in promoting consumer protection and a fair marketplace, its maturity into law is yet to materialize as it was never tabled before parliament. The proposed Bill instead faced some oppositions, for instance, the Central Bank of Kenya (CBK) connoted that its powers were being stripped in that the Bill proposed to limit the powers of the CBK to issue prudential guidelines to banks and place banks under receivership; the Bill was subordinating the Banking Act to itself; it proposed to repeal certain provisions under the Banking Act for approval of charges and other prudential guidelines; and the Bill would create dual regulators (FMCA and CBK) in the banking and financial sector which would result in shortcomings such as duplication and conflict of roles in the two regulators and increase of taxpayer’s costs in maintaining dual regulators. These valid concerns would have undoubtedly been addressed had the Bill been subjected to the law-making process and until recently no further attempts were made towards regulating the digital lenders industry.

Regardless of the status of the FMC it did pave a way for future consideration for the enactment of a regulatory framework of non-conventional lenders and last year June 2020, the Late Honourable Oroo Oyioka introduced the Central Bank of Kenya (Amendment) Bill 2020 (CBKA) which was in mid-February 2021 tabled before parliament. The CBKA proposes to amend the Central Bank of Kenya Act, Chapter 491, Laws of Kenya and extend the mandate of the Central Bank of Kenya (CBK) to regulate and supervise the conduct and financial products and services of digital lenders who currently do not fall within the ambit of the Central Bank of Kenya Act, the Banking Act and the Microfinance Act. If the Central Bank of Kenya (Amendment) Bill, 2020 is passed into law, the CBK will presumably assume the following roles over the non-conventional lenders: licensing, investigative and inspection, advisory, capping of interest rates chargeable, promotion of consumer protection, prescription and enforcement of penalties roles, among other roles.

The CBKA is now expected to go through the law-making process while the industry continues to self-regulate at the expense of Kenyans. The need for structure in this market is not debatable as the regulation of non-conventional lenders is not only akin to promoting a fair and non-discriminatory marketplace for consumers but is also important in safeguarding the availability of credit and promotion of economic development, but now the question remains on when will Kenyans enjoy the fruits of an effective regulatory framework. What we are experiencing is a case of the law running behind quick and emerging events that need regulation and our focus is now on the law makers to effect the proper regulatory framework.

This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. For further clarification, please do not hesitate to contact Jane Makena Kirimi (