Digital lenders to uncover source of funds in CBK dirty cash war

Business

Digital lenders to uncover source of funds in CBK dirty cash war


The Governor of the Central Bank of Kenya, Patrick Njoroge. PHOTO | SALATON-NJAU | NMG

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summary

  • CBK Governor Patrick Njoroge has repeatedly warned that digital lenders are offering platforms to offer dirty cash under the guise of providing cheap and easily accessible credit to Kenyans.
  • Money laundering involves transferring and disguising illegally obtained cash to make it appear legitimate and is primarily used by criminals and the corrupt to cleanse their wealth.
  • Unlike banks and microfinance institutions, digital lenders do not take deposits, which in turn lend to borrowers.

Digital lenders must disclose the sources of their money to the Central Bank of Kenya (CBK) from September 18 to curb money laundering.

The requirement follows the Official Journal of the Central Bank of Kenya (Digital Credit Providers) Regulations, which require lenders to provide details of their investors and also to demonstrate that the funds are not intended to finance criminal activities.

CBK Governor Patrick Njoroge has repeatedly warned that digital lenders are offering platforms to offer dirty cash under the guise of providing cheap and easily accessible credit to Kenyans.

Money laundering involves transferring and disguising illegally obtained cash to make it appear legitimate and is primarily used by criminals and the corrupt to cleanse their wealth.

“A digital lending provider must provide the bank with evidence and sources of funds invested or to be invested in the digital lending business and demonstrate that the funds are not proceeds of crime,” the regulations read.

Unlike banks and microfinance institutions, digital lenders do not take deposits, which in turn lend to borrowers.

Digital lenders rely on investors pumping billions of shillings to lend to borrowers.

The law previously did not require digital lenders to disclose the source of their funds, making them convenient platforms to clean up dirty money from dozens of unregulated microlenders that have flooded the market to offer loans.

A rising number of lenders who have flooded the Kenyan market to meet the growing need for easily accessible credit has prompted the CBK to warn of the need for tough anti-money laundering regulations for the sector.

Lenders are now required to comply with all provisions of anti-money laundering laws, which include flagging and reporting large and suspicious transactions to the Financial Reporting Center (FRC).

These transactions include cash in excess of Sh1M as digital lenders join banks and microfinance institutions to report high-value transactions.

FRC and other government agencies such as the Assets and Recovery Authority will take action on the transaction if they believe the money is part of the proceeds of crime or is intended to facilitate crime.

Violation of anti-money laundering laws carries a fine of up to Sh25 million for financial institutions or up to 14 years in prison or a fine of Sh5 million for individuals involved.

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