KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Sara Ndei, Cliffe Dekker Hofmeyr incorporating Kieti Law LLP
• accepting money on deposit from members of the public, which is repayable on demand; and • using the money held on deposit by lending, investing or other means, at the risk of the person lending or investing the funds. A similar definition is set out for “microfinance business” under the Microfinance Act. 4.2 Underwriting Processes There are no specific regulations that prescribe the underwriting process for industry partici - pants. However, the DCP Regulations impose an obli - gation on an NDCP not to advance any credit to a customer before it has taken reasonable steps to assess the customer’s ability to repay the credit facility. NDCPs will typically use consumer data and apply automated algorithms to make automat - ed decisions on a customer’s creditworthiness and risk. In undertaking such an assessment, the DCP Regulations require the NDCP to only collect and assess such customer data as is required for the appraisal. This is in line with the requirements on the processing of personal data set out under the Data Protection Act. 4.3 Sources of Funds for Fiat Currency Loans Deposit-Taking Lenders Entities that undertake deposit-taking busi - ness (eg, banks) raise funds from the following sources. Customer deposits As set out in 4.1 Differences in the Business or Regulation of Fiat Currency Loans Provided to Different Entities , entities undertaking “banking
business” or “microfinance business” will obtain deposits from customers, which will then be used to issue loans to customers. Equity capital The shareholders of a deposit-taking business will typically provide capital in the form of: • permanent shareholders’ equity (issued and fully paid-up ordinary shares and perpetual non-cumulative preference shares); • disclosed reserves (such as ordinary share capital and perpetual non-cumulative share premium); and • retained earnings. Debt capital Deposit-taking business can also raise capital through debt from lenders or investors (eg, con - vertible notes). Non-Deposit-Taking Lenders Lenders that do not obtain deposits from cus - tomers but provide loans (eg, NDCPs) source funds from capital raised as either equity capital or debt capital, in a similar manner to deposit- taking lenders. Regulation of Sources of Funds Raising debt or shareholder capital would be subject to regulation if such capital raise is con - sidered to be “public offer of securities” . In such instances, the entity would be required to com - ply with the Capital Markets Act and the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002. A public offer of securities occurs when a com - pany extends an invitation to a broad segment of the public to invest in its financial instruments, and would occur if:
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