Kenyan borrowers and loan guarantors can breathe a sigh of relief with the passing of the Financial Markets Conduct Bill, 2023. Approved by the National Assembly Finance and National Planning Committee, this Bill aims to safeguard the interests of borrowers and loan guarantors by mandating full disclosure of information by lenders to potential borrowers and guarantors before granting loans.
Under this Bill, lenders are required to provide a pre-contract statement and quotation detailing all terms of the loan, including the number of installments and repayment dates and the total amount to be repaid, which includes the principal, interest, loan fees, and charges.
The Bill also prohibits lenders from charging or recovering from the borrower or guarantor’s interest rates that exceed the maximum rates prescribed by the Financial Markets Conduct Authority.
In addition to these measures, the Bill establishes the Financial Sector Ombudsman to handle complaints and the Financial Services Tribunal to arbitrate disputes in the financial services sector. This ensures that borrowers and loan guarantors have access to a fair and impartial system to address any grievances they may have.
The Bill also requires lenders to determine whether the borrower and guarantor can comply with the financial obligations under the contract without substantial hardship. If the lender declines the loan, they will be required to provide a specific reason for doing so, increasing transparency and accountability in the lending process.
Moreover, retail financial customers may claim compensation from the Conduct Compensation Fund in case of any loss or damages caused by a financial product/service provider. This provision is a significant relief for customers who may have suffered losses due to the malpractices of financial institutions.
The proposed Bill seeks to establish uniform practices and standards for providers of financial services, regulate the cost of credit, and establish the Financial Markets Conduct Authority. The Authority’s functions shall be to regulate and supervise providers’ conduct in providing financial products and services to retail financial customers.
The Bill establishes the Financial Markets Conduct Authority Board of Directors, which consists of a non-executive chairperson appointed by the President, the National Treasury Cabinet Secretary, the Central Bank of Kenya governor, five other persons with relevant experience appointed by the Treasury Cabinet Secretary, and the CEO, who shall be an ex-officio member with no right to vote.
The Bill also provides for financial conduct licenses, limiting the provision of financial products and services, as service providers cannot operate without them. In conclusion, the Financial Markets Conduct Bill of 2023 is a crucial step towards creating a fair, non-discriminatory financial market in Kenya. By establishing uniform practices and standards for financial service providers, regulating the cost of credit, and providing a transparent and accountable system for borrowers and loan guarantors, this Bill paves the way for a more equitable financial system in the country.
It will prevent lenders from charging or recovering from a borrower’s or guarantor’s excessive interest by restricting lenders from varying the rates during the contract’s life.
Lenders will also be expected to determine the likelihood of a borrower and guarantor complying with financial obligations or declining to lend.
