Under the new law, buy-now-pay-later firms fall under the purview of the CBK

The Central Bank of Kenya (CBK) will now determine the prices to be charged by buy-now-pay-later (BNPL) companies if proposed amendments to the law are passed by Parliament.

The Business Laws (Amendment) Bill 2024 removes the definitions of digital channel, digital credit, digital credit business and digital credit provider in the Central Bank of Kenya (Amendment) Act 2021 and replaces them with buy now pay later and provider credit

According to the bill, these credit providers include non-deposit credit providers, whose activities will be regulated by the Central Bank.

These are credit providers that issue secured or unsecured loans with or without interest, asset financiers, credit guarantors and “peer-to-peer lending under collective investment schemes regulated by the Capital Markets Act”.

The bill defines BNPL as an arrangement where a consumer buys goods or assets, whether backed by the goods or assets or not, and pays later in installments with or without interest.

Under the Central Bank of Kenya (Amendment) Act 2021, the regulator is empowered to license digital credit providers (DCPs), approve digital channels through which these loans can be provided, determine pricing parameters for digital credits, monitor DCPs and suspend or revoke operations. their licenses.

“Section 2 of the Central Bank of Kenya Act is amended by adding buy-now-pay-later arrangements as defined by the Bank, but does not include hire purchase agreements governed by the Installment Purchase Act,” the bill reads.

The regulation of BNPL companies will fundamentally change the way business is done in the fast-growing country. This happened against the background of numerous complaints from customers of BNPL firms about predatory lending, cries that spilled over into the parliament.

National Assembly Finance Committee Chairman and Molo MP Kuriya Kimani at the time told CBK Governor Dr. Kamau Tugge that the committee had received complaints from boda boda operators who accused the firms of exploiting and suspiciously losing motorcycles sold to them before the loans were fully repaid. .

“We believe there is a loophole or legal loophole that prevents CBK from fully supervising buy-now-pay-later firms.” The products they offer are not licensed as DCPs (digital credit providers),” said Mr Kimani.

National Assembly Majority Leader and Kikuyu MP Kimani Ichung’wa, who introduced the bill to Parliament, says the proposed law will help remove uncertainty surrounding the status of BNPL’s business in Kenya.

“The new definitions also clarify that certain lending businesses such as buy-now-pay-later lending services, peer-to-peer lending and asset financing are covered by the law, thus removing the uncertainty that has existed since the law came into force,” said Mr. Ichung. wow

This comes nearly three years after the CBK began regulating digital lenders that were previously unregulated under the Central Bank of Kenya (Amendment) Act 2021.

However, this has left some lenders, such as BNPL, in limbo as to whether they fall under the CBK’s purview.

BNPL’s firms have seen a boom in recent years amid economic challenges, making it easier for consumers to buy goods, especially household items such as electronics and furniture, and pay for them in installments.

Some of BNPL’s providers in Kenya include Lipa Later, Aspira, Loop, Safaricom, M-Kopa and MasterCard.

The government has also recently empowered the CBK to regulate rent prices. Draft amendments to the Movable Property Pledge Act, which was published earlier this year, were intended to give the CBK control over redemption costs.

“The Central Bank determines the interest rates for any purchase of goods in return,” the amendments state.

However, the regulation of the business will remain in the register of purchase and sale at the Business Registration Service (BRS).