It is now prohibited for microfinance companies to engage in harassment of borrowers following the implementation of a new law.
The Business Laws (Amendment) Bill, 2024, which revised the Microfinance Act, came into effect on January 1, 2025.
According to the new legislation, non-deposit-taking microfinance lenders are forbidden from harassing, abusing, or oppressing borrowers, guarantors, or any individuals involved in debt recovery.
Threatening behavior, violence, or any unlawful methods in the process of debt collection are now illegal.
Additionally, the use of obscene or profane language directed at borrowers, guarantors, or anyone associated with loan recovery is also prohibited.
The law requires these companies to provide borrowers with clear and accurate information regarding loan terms and financial obligations while ensuring the confidentiality of borrower data.
Lenders must also inform borrowers about the procedures and conditions related to lending and debt recovery.
Reports have indicated that some digital lenders have employed harsh debt recovery practices.
Borrowers who default, even by a single day, have claimed to receive threatening communications.
The Business Laws (Amendment) Bill, 2024 aims to broaden the regulatory authority of the Central Bank of Kenya (CBK) to encompass non-deposit-taking credit providers, including digital lenders, peer-to-peer lenders, and credit guarantee firms.
The objective is to foster fair practices, ensure financial stability, and enhance consumer protection through licensing, credit information sharing, and more stringent oversight.
Furthermore, it shifts the regulation of non-deposit-taking microfinance entities from the Microfinance Act to the CBK Act.
This transition introduces new transparency requirements, including the obligation to disclose all credit costs and borrower rights.
The Bill, introduced by the Leader of the Majority Party, Hon. Kimani Ichung’wah, aimed to amend nine Acts of Parliament to improve regulatory oversight, streamline processes, and promote economic stability.
