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Let’s ensure digital loans don’t create debt trap
A man holds his smartphone with the display of different types of mobile loan lending services displayed on his screen, in this illustration photo taken in Nairobi, December 8, 2021.
Across Kenya, digital loans have integrated into daily economic routines. With a few smartphone taps, households secure instant credit. This innovation has bridged significant gaps in financial access, particularly for informal traders and low-wage earners.
Beneath this convenience lurks a structural challenge that threatens household welfare, labour productivity, and long-term financial stability. As default rates on digital loans surged to as high as 40 per cent in 2024, Kenya finds itself at crossroads where digital credit could either advance financial inclusion or perpetuate cycles of debt vulnerability.
Mobile finance provides fast accessibility with minimal approval requirements. This accessibility has driven explosive growth, with licensed digital credit providers having disbursed 6.6 million loans valued at Sh109.8 billion by November 2025. However, this comes at a price. Borrowers encounter opaque fee structures, short repayment periods and high interest rates. Recent data underscores the strain, with non-performing loans in the digital sector reaching 15.9 per cent overall by mid-2025.
The repercussions include aggressive collection tactics, including persistent calls, reaching out to employers and family, public shaming and unauthorised contact mining, which inflict serious personal harm. Once flagged by credit reference bureaus, defaulters face exclusion from affordable credit, driving them toward informal moneylenders with even harsher terms.
The Central Bank of Kenya introduced the Digital Credit Providers Regulations in 2022 to curb these risks. However, enforcement gaps persisted, which prompted the drafting of Non-Deposit Taking Credit Providers Regulations, 2025.
Strengthening consent-based data sharing among lenders mitigated multiple borrowing without compromising privacy. Mandating transparent pricing empowers informed choices. Embedding financial literacy as a licensing prerequisite ensures borrowers grasp debt dynamics beyond mere access. Finally, penalties deter misconduct without stifling innovation.
Digital credit holds transformative potential. However, it risks entrenching indebtedness if unchecked. Therefore, policymakers, lenders and consumers must collaborate to pair growth with ethical sustainability.
Felix Masika Katutu, Nairobi
