Is it illegal to run a shylock business?

While money lending has been formalised and regulated through various laws, policies, and regulations, informal exchange systems continue to flourish.

Shylocking, the practice of lending money at exorbitantly negotiated interest rates, is one of the most exploitative loan schemes. It is often appealing to desperate borrowers who may struggle to meet the qualifications set by established lending institutions, including commercial and retail banks, microfinance organisations, and digital lenders such as mobile phone companies.

Due to its exploitative, unprofessional, and cruel nature, shylocking is not permitted in Kenya.

According to the Business Law Amendment Act of 2024, which amended the Central Bank Act, the term "non-deposit-taking credit provider" is the most accurate description for a shylock, although such individuals are unlicensed. This Act defines a non-deposit-taking credit provider as a person (either legal or natural) who is licensed by the Central Bank to conduct a lending business using their funds and assets, excluding national or county governments. The street definition of "shylocks," often referred to as loan sharks, describes them as lenders who charge exorbitant interest rates, typically exploiting desperate individuals or businesses for profit.

The Central Bank of Kenya Digital Credit Providers Regulations of 2021 stipulate that any individual or institution engaged in lending without the appropriate license is committing an offence if lending is a part of their core business. The Act also specifies that if another law regulates a lender, they must obtain a digital provider license. This requirement automatically excludes any institution registered under the Banking Act, the Microfinance Act (2006), the SACCO Societies Act, and the Kenya Post Office Savings Bank Act.

Additionally, it does not apply to individuals who provide incidental credit in connection with their trade, such as in selling goods or providing services.

Based on these legal provisions, it is clear that shylocking is prohibited, as is the practice that defines and accompanies it. This trade is outlawed due to a lack of compliance and a deliberate defiance of enforcement measures. In the case of SCCOMM/E994/2025, M-Collect Limited vs. Mbana Kalua, the Court sought to determine whether the petitioner had legal recognition and operated accordingly. If the Claimant, M-Collect Limited, had satisfied the requirements of Section 33S of the Central Bank Act—which stipulates that no person may operate a non-deposit-taking credit business without being licensed by the Bank or unless permitted by other laws, then their business would have met the standards for legal compliance.

The issues surrounding shylocks, shylocking, and their clientele fall far below the standards set by the maxims of equity, which oppose wrongdoing and advocate for rightful and legal remedies. The first maxim states that “he who comes into equity must come with clean hands.” In everyday language, this means that equity will not allow anyone to gain, profit, or benefit from a wrong for which they are seeking redress.

The second critical maxim is that equity follows the law, meaning equity cannot function when existing laws are being violated.

This was best illustrated by the Court's decision in the SCCOMM/E994/2025 case involving Aventus Technology Limited. The Honourable Magistrate stated: “As it stands, Aventus Technology Limited is operating in violation of the regulations set by the governing authority, and the Court cannot validate illegal activities by presiding over such matters. Therefore, all the cases filed by Aventus Technology Limited that appear on today’s cause list are hereby dismissed, as the Claimant is acting contrary to the law.”

Although many statutes have declared shylocking illegal, one might attempt to gain the Court's attention by invoking contract law and claiming that these are private business transactions. In this scenario, the Consumer Protection Act may be relevant, and Article 46 of the Constitution should serve as a guiding principle.

A borrower, as a consumer, has the right to expect goods and services of reasonable quality, necessary information to fully benefit from those goods and services, and protection for their health, safety, and economic interests. The answer is no to both, since the practice does not qualify to be presented and determined in a competent court of law.