The Kenyan government and the Central Bank of Kenya (CBK) have announced that all fees charged by digital lenders will be subject to a 20% excise tax.

Amendments to the Excise Duty 2015 of the Finance Bill were submitted in parliament last week, and if passed by a majority, will allow Kenya's 120 digital lenders to pay a 20% charge to the Central Bank of Kenya.

Kenyan digital lending is fast expanding, with disbursed loans totaling more than Ksh 2 billion ($17 million) per month. The proposed amendments, on the other hand, will make it more expensive for citizens to obtain online credit facilities. Digital loans have been taken by 13% of Kenya's population of 53.7 million people. Customers will be burdened by the implementation of a tax charge in the form of higher interest rates on loans taken out. Branch, for example, charges a monthly interest rate of 17 percent, whereas Tala charges up to 19 percent.

Unregulated Environment

The government was concerned about the unregulated nature of digital lenders in the Kenyan market since many have become predatory and dishonest in their debt collection techniques. Following a time of tax-free operations, their tremendous uptake was unavoidable. The Central Bank of Kenya (Amendment) Bill, which gave the Central Bank the power to regulate digital lenders, was approved by Parliament last year. The approval also made digital lenders accountable to the Data Protection Act, which prohibits companies from using debt-shaming to violate users' privacy.

Before making a final decision, Parliament will debate the proposal until Thursday, June 9th.

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