Digital lenders to reveal source of their funding in bid to curb money laundering

Digital lenders will from September 18 be required to reveal their sources of funding to the Central Bank of Kenya (CBK).

The regulation comes as the CBK hardens the war on money laundering which, CBK governor Patrick Njoroge says has been ongoing in the digital lending sector.

The Central Bank says digital lenders are hiding under the guise of providing low interest accessible loans while cleaning money obtained through criminal activities.

The new regulations say that digital lenders shall table evidence of the source of funding to be invested in the digital credit business while proving the monies are not illegally obtained.

“A digital credit provider shall provide to the bank the evidence and sources of funds invested or proposed to be invested in the digital credit business and demonstrate that the funds are not proceeds of crime,” the regulations say.

Central Bank of Kenya ece-auto-gen

The Kenyan market has seen an increased number of digital lending platforms which thrive because of the need for easily accessible loans by Kenyans.

The increase has been attributed to the lack of policies compelling the lenders to disclose their sources of funding, making them an avenue for money laundering.

The central bank has also barred digital lenders from forwarding loan defaulters’ names to the credit refence bureau without their knowledge.

“A digital credit provider who intends to furnish negative information to a bureau with respect to a customer shall, in writing or through electronic means, notify the customer of the intention to submit the negative information at least 30 days before submitting the negative information to the bureau," the regulations state.

The regulations also aim at protecting customer privacy after complains of abuse of privacy by the lenders increased.

The lenders deployed tactics which compromised customer privacy such as reaching out to contacts of the defaulter as well as threatening borrowers with negative listing.