Persons who took loans from non-deposit taking microfinance institutions can breathe easy as new law enacted on January 1, 2025 shielding them from exploitative debt collection schemes.
Members of the National Assembly in December adopted amendments to the Microfinance Act barring creditors from using violence, threats or harassment to recover debt.
The changes made through the Business Laws (Amendment) Bill, 2024, also forbids lenders from harassing guarantors or any other person related to the debtor when recovering debt.
The new regulations essentially outline a raft of mechanisms to protect consumers by barring lenders from engaging unlawful mechanisms when dealing with loan defaulters.
It requires a non-deposit-taking Micro-Finance Businesses (MFB) to be transparent by giving consumers accurate data on loan terms, all costs and uphold borrower privacy prior to taking the loan.
“A non-deposit-taking microfinance business (MFB) shall, in the course of debt collection or loan recovery a) not harass, abuse or oppress a borrower, guarantor or any person in connection with collection or recovery of a debt, b) not threaten or use violence or illegal means in collection or recovery of a debt, or c) not use obscene or profane language to a borrower, guarantor or any person in connection with collection or recovery of a debt,” reads Section 53 (2) of the Microfinance Act.
MFBs are also mandated by the new regulation to conform to the requirements of Article 31 of the Constitution and the Data Protection Act when lending loans and recovering debts.
The regulation bans MFBs from charging interest, fees or penalties on borrowers’ loans unless this is clearly outlined in the agreement between the creditor and the debtor.
Non-deposit taking MFBs have been given six months to apply for a new licence and comply with conditions given by the Central Bank of Kenya (CBK) to continue operating in Kenya.
