CBK Set to Regulate Buy-Now-Pay-Later Services in Consumer Protection Push

A significant legislative development is underway in Kenya’s financial sector with the introduction of the Business Laws (Amendment) Bill, 2024. This bill aims to empower the Central Bank of Kenya (CBK) with authority to regulate buy-now-pay-later (BNPL) companies, particularly focusing on their pricing structures.

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The proposed legislation seeks to streamline terminology by removing specific digital-related definitions from the Central Bank of Kenya (Amendment) Act, 2021. Terms like “digital channel,” “digital credit,” “digital credit business,” and “digital credit provider” will be replaced with broader terms such as “buy-now-pay-later” and “credit provider.” These new definitions will encompass non-deposit-taking credit providers offering various financial services.

Under the new framework, credit providers will include entities offering both secured and unsecured loans, asset financing, credit guarantees, and peer-to-peer lending under collective investment schemes regulated by the Capital Markets Act. The bill specifically addresses BNPL arrangements while excluding hire purchase agreements governed by the Hire Purchase Act.

The legislation responds to mounting concerns over Kenya’s rapidly expanding BNPL sector, which has faced criticism for alleged predatory lending practices. Several complaints have emerged, particularly from boda boda operators, regarding exploitation and unfair treatment. Major players in Kenya’s BNPL market include Lipa Later, Aspira, Loop, Safaricom, M-KOPA, and MasterCard.

Earlier this year, Members of Parliament called for increased CBK oversight of BNPL firms. Molo MP and National Assembly Finance Committee chairman Kuria Kimani highlighted specific issues, including premature vehicle repossessions. National Assembly Majority Leader Kimani Ichung’wah, the bill’s sponsor, emphasized that the new definitions would clarify the legal status of BNPL firms and address existing regulatory uncertainties.

Additionally, the government has proposed amendments to the Movable Property Security Rights Act, which would grant CBK authority to regulate hire purchase costs and set interest rates. While the CBK would oversee these aspects, the hire purchase registry would remain under the Business Registration Service’s management.

These comprehensive reforms aim to strengthen consumer protection and enhance oversight in Kenya’s expanding credit market, addressing long-standing concerns about regulatory gaps in the BNPL sector.

Here’s what it means for you:

1. This could mean more reasonable interest rates and fees, protecting you from excessive charges.
2. This could translate to a more standardized and potentially lower interest rates for hire purchase agreements
3. You should receive better disclosure about costs and repayment terms thus making it easier to compare different BNPL services before choosing one.
4. The increased regulation could mean longer approval processes and some companies might reduce their services or exit the market.

Source; Business Daily

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