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NAIROBI, Kenya, Sep 23 – The High Court in Machakos has dismissed a case by a micro lenders’ lobby challenging the CBK Act 2021 which subjects Digital Credit Providers to regulation.
In the case, the association of Microfinance Institutions in Kenya (petitioner), decried the enactment of the Central Bank of Kenya (Amendment) Act, 2021 notwithstanding the fact that the National Treasury was to develop regulations for non-deposit-taking microfinance institutions.
The Petitioner lamented that its members who include non-deposit-taking microfinance institutions have since found themselves being subjected to the requirement to take out licences under the Central Bank of Kenya (CBK) Regulations since they are yet to be regulated through a framework contemplated under Microfinance Act 2006.
They claimed that their members are at the brink of suffering untold prejudice as they will unfairly and illegally be subjected to regulations whose net effect is to lump them up with digital credit providers thus limiting their operations and or completely closing them down.
The petitioners had also argued their views were not incorporated due to a lack of public participation.
“The Petitioner contended that the Amendment Act is unconstitutional for failure to meet the public participation threshold,” the court said.
The petitioner further contended that in so far as the Regulations exempt institutions licensed under the Banking, Micro – Finance Act, Sacco Societies Act among others but fail to exempt non-deposit taking Micro Finance businesses who are yet to be regulated under the Microfinance Act.
They contended that provisions in the CBK Act 2021 are discriminatory against non-deposit taking microfinance institutions whose nature of business is similar to banks and institutions licensed under the Micro Finance Act.
According to the Petitioner, its members’ right to fair administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair was infringed upon by the National Treasury and CBK.
The petitioner had invited the court to declare Section 59 of the CBK Act and/or the entire Amendment Act unconstitutional for the reasons stated.
In his judgment, Justice Odunga George said he was not persuaded that there had been any violation of any constitutional rights or freedoms of the institutions represented by the petitioner.
“The enactment of Central Bank of Kenya (Amendment) Act, 2021 and the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022 cannot amount to infringement of the constitutional rights of the Petitioners,” Odunga stated.
On the contrary, he noted that as admitted by the microfinance institutions, regulations are necessary to superintend, the manner in which their members conduct their business in the interest of the public that rely on such services.
“Having arrived at the aforesaid findings, the order that commends itself to me and which I hereby make is that this petition lacks merit and is hereby dismissed but with no order as to costs as this matter clearly as a public interest matter,” Odunga ruled.
Digital Credit Providers regulations were gazetted in March bringing digital lenders under the watch of CBK for the first time.
Under the regulations, all digital lenders were expected to apply for licenses from the banking regulator before September 17.
So far, CBK has licensed 10 applicants as digital credit providers, pursuant to the CBK Act and the Regulations.
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