A Microfinance Story for those Questioning the NEW Kenyan Consumer Protection Bill

The new Kenyan constitution requires the government to adopt a consumer protection bill into law. At the moment, the draft of the bill is currently under the review of the Commission for the Implementation of the Constitution (CIC). This is exciting news as the consumer protection bill in 2007 failed to be passed by parliament. With the new interest and demand for the bill, here is a story to motivate the Kenyan government to take to heart the millions of consumers in Kenya that are in need of protection through this new bill.
 

Agatha is one of many borrowers discouraged by the practices of microfinance because of the lack of protection for consumers such as herself. Several years ago as a mother of three, Agatha wanted to help support her family by opening a clothing shop as her own business, the dream of many Kenyan women. She explained to me that she finally became a member of a microfinance institution after a referral from a friend in order to gain capital and knowledge to grow her dream. 

After borrowing her second loan, the practices of her microfinance program began to change dramatically starting with 3% increases in interest for each new loan. Her payments on existing loans also began changing as well without any prior explanation or notice from the loan officer she trusted and called teacher.  She began to question if such changes were permitted, but the microfinance institution did not give her a copy of her loan agreement before or after signing it.

With such changes, many of the borrowers in her self-help group began missing loan payments for which the other members became partly responsible for paying, including the accumulating penalty fees charged after a missed loan payment. Agatha herself was barely able to pay her third loan, but only through the help of family and friends.  It was then that she decided to leave the world of microfinance for good. These experiences continue to deter her from borrowing to this day because of the lack of protection of borrowers such as herself and her friends in the self-help group.  

How many more borrowers share Agatha’s experiences? If the Consumer Protection Bill is passed, Agatha’s story, and the story of countless others like her, can be a consumer problem of the past due to several key protections in the new bill. 

First, the Consumer Protection Bill requires lenders to deliver a disclosure statement to every borrower summarizing their credit agreement. (An improvement to the bill: all statements should be offered to clients in any of the official languages of Kenya, not just English.)

Second, within thirty days of increasing the annual interest rate of a loan by 1% or more that results in the increase of a borrower’s loan payment amounts, the lender must submit a new disclosure statement to the borrower stating the changes. 

Third, fees that result from the default of a borrower are limited to responsible charges incurred by the lender in collecting payments and repossessing or protecting the security pledged by the defaulter. 

Fourth, a borrower can pay the full balance of his or her loan at any time without penalty. 

Fifth, lenders can not release or make representations of any credit agreement in any form unless complying with the prescribed requirements set by the bill. Thus, the bill will provide privacy of information for borrowers. 

Although the Consumer Protection Bill should include many more consumer rights, if it is passed, Agatha and other microfinance clients will have something to celebrate during the New Year. Agatha's story shows the potential impact that the bill could make in the lives of microfinance clients. With the expansion of financial based consumer rights in the bill, microfinance clients will be able to access improved financial services that will enhance a long and healthy financial future for all Kenyans.