The Central Bank of Kenya (CBK) could soon control borrowing costs in hire-purchase deals in fresh proposals that would expand the mandate of the apex bank beyond banks, microfinance institutions and most recently, digital lenders.
The new proposal is contained in draft amendments to the Movable Property Security Rights Act which will also see the oversight of hire-purchase agreements transitioned from the Hire Purchase Act that is set to be repealed.
The move to regulate borrowing costs under hire-purchase agreements comes amid a resurgence of the purchase of goods on credit which has been fueled largely by innovation and the use of technology in the age-old trade.
“The CBK shall determine the interest rates in respect of any hire-purchase of goods,” reads part of the proposed amendments.
The licensing of hire-purchase businesses shall, however, remain under the purview of the Business Registration Service (BRS) which is expected to continue issuing the permits and imposing requisite conditions.
The Treasury Cabinet Secretary shall be allowed to make regulations with respect to the licensing of hire-purchase businesses.
Currently, the licensing and supervision of hire-purchase businesses is carried out by BRS’s higher purchase registry which is linked to the movable property security rights registry.
The bid to have the CBK’s say in hire-purchase costs comes amid an ongoing parliamentary inquiry into alleged exploitative lending practices by asset finance institutions operating under the buy-now pay-later model.
Last month, the departmental Committee on Finance and National Planning begun an inquiry after it noted that various asset finance institutions have been abusing the buy-now pay-later financing model to exploit young and low-income Kenyans, especially in the bodaboda sector through deceitful and exorbitant hidden fees, interest rates and penalties.
Consumers have taken a renewed liking to the hire purchase model on the innovation of the traditional channels to purchase goods on credit particularly electronics such as mobile phones, kitchen appliances and furniture.
Among the prominent service providers of the modern hire purchase agreements are Pay Later, M-Kopa, Aspira, Watu and Flexpay.
Telecommunications provider Safaricom also recently debuted in the space by unveiling its Faraja proposition, a product offered in partnership with EDOMx.
Similar concerns to those raised by the National Assembly Finance Committee resulted in digital credit providers falling in the ambit of regulation under the CBK.
By repealing the Hire Purchase Act and providing for a CBK oversight on hire-purchase costs, the government notes that it is seeking to improve the operations of the businesses.
“The Bill seeks to provide a sound environment for credit purchase transactions, defined under the Movable Property Security Rights Act to include hire-purchase agreements by fully transitioning the Hire Purchase Act to the Movable Property Security Rights Act," the Bill reads.
Following amendments to the CBK Act in 2021, the apex bank became a regulator to digital credit providers who are now required to obtain a license.
The 2022 CBK digital credit providers’ regulations guide the conduct of digital credit businesses including approving products and variations to product features.
