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Opinion: Customer-centric regulation to enable growth of Fintech

NAIROBI, Kenya, Dec 22 – The year 2020 has been tough for businesses across the world. Small businesses, that are the lifeline our economy, have particularly been bearing the brunt of the economic shock presented by the COVID-19 pandemic.

We witnessed unprecedented job losses while a lot more businesses had to either temporarily close and thousands of jobs lost. It has been a gloomy year at best, and this is weighing down on the growth of small businesses and the
informal sector.

Reports of the vaccine is a shot in the arm for the global economy, but the impact of the pandemic on businesses may not be instant. For immediate economic bounce back there is a need for concerted effort facilitated by the government but largely driven by the private sector to ensure businesses are more resilient.

One way we can increase resilience to future shocks is by supporting a growing, inclusive, and productive private sector especially the vulnerable segments like women and youth-owned businesses. These sectors were already facing a significant financing gap even before the outbreak of coronavirus, the pandemic has only made the financial vulnerabilities an existential threat for many of these enterprises.

On a more optimistic note, the pandemic presents a unique opportunity for us to build back better, without leaving anyone behind. MSMEs and the informal sector for instance matter, and they must be at the center of any post-pandemic recovery effort for a greater bounce back.

As fintech players, we look at this opportunity to harness digital finance to enhance financial inclusion and nudge small businesses into a sustainable future.

Since the COVID-19 mitigation measures— lockdown and social distancing— were announced in March, a number of Kenyans of all ages are increasingly discovering the benefits that digital finance offers, with many exploring new
technological tools and financial apps that they would have shied away from only a few months earlier. This has a knock-on effect on financial innovation and digital transformation in improving levels of financial inclusion in the country.

As a country, we can leverage this to address a number of inequalities and potentially mitigate economic fallout while accelerating recovery.

The pandemic is also an opportunity to relook the key issues that will enable the digital financial sector to increase its participation in economic development to benefit many low-income earners and small businesses.

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First, regulation has been a concern with the industry inundated with claims of taking advantage of a lack of a regulatory framework to engage in usurious activities that are exploitative to the borrowers. This is an opportunity to
reimagine the regulation of the industry.

Regulation is in our interest too. We believe regulation will enable us to harmonize concerns around opaque loan pricing disclosure, problematic debt collection practices, violations of data privacy expectations, loan stacking and
related credit bureau challenges, as well as lack of oversight of bad actors.

We are well aware of the need to regulate and there are efforts by various stakeholders from the legislators, to the Central Bank of Kenya and consumer protection bodies.

As industry players, we are joining these stakeholders in calling for a new regulatory framework to govern digital finance so that consumers may enjoy the benefits of financial access without the risks.

Secondly, we stand ready to work with government stakeholders to develop responsible and customer-centric regulations. We believe, through regulation, we will be able to mainstream the industry and reign in rogue players, promote fair industry standards, and enhance the competitive landscape in order to
increase customer choice.

The industry, however, is cautious that any hasty and overly onerous, and prescriptive regulation would undermine the financial inclusion efforts and significantly restrict critical access to credit. We are keen to ensure that the regulation that occurs doesn’t destroy the industry— instead, it fosters consumer protection, enables competition and innovation to continue, enhance transparency in pricing and provide fair recourse for both lenders and borrowers when there are instances of default.

Thirdly, we need to work together to reduce costs that affect customers. These costs include the cost of verifying a customer’s identity, transaction costs on mobile money platforms and the cost of capital. The lenders have to push these costs to the customer and as a result they bear an unnecessary burden.

Finally, regulation is also in the interest of digital finance players. A good regulatory framework will enable the industry to access cheap funds from the capital market. As it is, a number of potential investors have adopted a wait-
and-see attitude because of the inherent risk in the industry. The regulation will unlock this and consequently lowering the cost of digital lending to the benefit of the customers.

By Kevin Mutiso – The Chairman Digital Lenders Association of Kenya (DLAK).

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