As of January 1, 2025, it is now illegal for microfinance companies in Kenya to harass borrowers or their guarantors during debt recovery. This landmark development follows the enactment of the Business Laws (Amendment) Bill, 2024, which amended the Microfinance Act to introduce stricter guidelines for loan recovery practices.
Under the new law, non-deposit-taking microfinance lenders are prohibited from employing harassment, abuse, or oppressive tactics when collecting debts. Borrowers, guarantors, and any parties connected to loan recovery are now legally protected from threats, violence, and the use of obscene or profane language by lenders.
The legislation also emphasizes the importance of transparency and borrower rights. Lenders are required to provide accurate information about loan terms, financial costs, and the procedures for lending and recovery. Confidentiality must also be upheld to ensure borrower privacy.
This law aims to address long-standing complaints from borrowers about unethical practices by some digital lenders. Reports have emerged of borrowers receiving threatening messages after missing payments by just one day, highlighting the need for tighter regulatory oversight.
The Business Laws (Amendment) Bill, 2024, also transfers the regulation of non-deposit-taking microfinance businesses to the Central Bank of Kenya (CBK) from the Microfinance Act. This move expands the CBK’s regulatory mandate to include digital lenders, peer-to-peer lenders, and credit guarantee businesses. The goal is to promote fair practices, ensure financial stability, and enhance consumer protection.
The bill, sponsored by Leader of the Majority Party Hon. Kimani Ichung’wah, also proposes amendments to nine Acts of Parliament, including the Banking Act, CBK Act, and Scrap Metal Act, to streamline regulatory processes and bolster economic stability.
With this new law, Kenya seeks to foster a more responsible credit environment and protect consumers from predatory lending practices.
