A Kenyan court has dealt a blow to unlicensed digital lenders, ruling that firms operating without a Central Bank of Kenya (CBK) licence cannot use the courts to recover debts from borrowers.

🇰🇪 Breaking It Down

In a recent landmark ruling delivered on July 17, the Small Claims Court ruled that an unlicensed lender cannot rely on the courts to enforce rights arising from lending activities conducted without the required regulatory approval.

The case involved a lender that claimed it had advanced a borrower Ksh213,500, which was to be repaid as Ksh229,513 in a single instalment by April 18, 2021.

The loan was secured by a motor vehicle, but the lender told the court that the borrower defaulted, leaving an outstanding balance of Ksh85,000, which had subsequently increased to Ksh500,000.

📌 What You Need to Know

The lender further claimed that the vehicle could not be sold to recover the debt because it had a registered caveat.

However, before considering whether the borrower owed the amount claimed, the court examined the lender's legal capacity to bring the case.

In its finding, the court found that the claimant was not licensed by CBK, meaning it was operating and giving loans without approval.

The magistrate threw the case immediately, citing Section 3 of the Banking Act, which requires persons or entities carrying out banking or financial business in Kenya to obtain the necessary licence from the Central Bank.

"Before delving into the merits of the case, I have considered the court record and note that the claimant is not licensed as a digital credit lender by CBK. Section 3 of the Banking Act (Cap 488) requires all persons or entities carrying out banking or financial business in Kenya to be licensed by the Central Bank of Kenya. It then follows that conducting lending business without such licensing amounts to an illegality and economic risk," the magistrate stated in the ruling.

According to the magistrate, conducting lending business without the required licence amounts to an illegality and creates an economic risk.

📰 Source: Kenyans.co.ke