Kenya’s mobile lending boom has transformed access to credit, but it has also led to severe indebtedness among borrowers. Some Kenyans have confessed to taking loans from multiple apps without a clear plan for repayment, while others are borrowing to bet.
Speaking on Nation FM’s Fix The Nation show on March 25, Kevin Mutiso, Chair of the Digital Financial Services Association of Kenya, shed light on the challenges borrowers face and how the industry was responding.
Mutiso recounted a striking case where an individual said they had borrowed from 52 apps and all loans were active: “We ran an experiment in December last year, where we asked people who were over-indebted to come forward. One individual came to us with a shocking story—he had taken loans from 52 different apps, totaling KSh 1 million, yet his monthly salary was only KSh 55,000.”
Such cases highlight the pressing issue of over-indebtedness in Kenya, which Mutiso attributes in part to regulatory changes. “Over-indebtedness is a huge problem in this market,” he said.
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“It was actually caused by a government circular that came out in 2020 during the COVID period. Before that, non-licensed lenders could submit data to the Credit Reference Bureau (CRB). When we were removed, it meant that if someone borrowed from one lender, then another, and another, none of us could see they had multiple loans. As a result, we now have a serious over-indebtedness issue.”
Borrowing culture: Consumption vs. investment
According to Mutiso, one of the biggest mistakes borrowers make is taking loans for the wrong reasons. “The first thing I always tell people is don’t borrow to consume. If you see a nice handbag or a nice pair of shoes, don’t borrow to buy them. Borrow to make more money,” he advised.
His sentiments had earlier been echoed by HF Group CEO Robert Kibara, who discouraged Kenyans from borrowing for consumption and borrowing without a clear repayment plan.
He explained that mobile loans, in particular, should be treated as working capital. “We lend over KSh 500 million daily, about KSh 15 billion monthly, to 8 million Kenyans. The average loan ticket is KSh 5,000. Most borrowers use this money to increase their stock—mama mbogas buy more tomatoes and potatoes, boda boda riders fuel their bikes. One of the most innovative products we’ve seen is fuel now, pay later.”
Hidden costs and lack of financial literacy
Mutiso also warned borrowers to be aware of the costs associated with digital loans. “Know your interest rate. If I’m being charged 10% interest, what is the margin of the thing I’m selling? If I borrow at 10% but my profit margin is only 5%, I’m already making a loss. Do the math before you borrow,” he cautioned.
Beyond interest rates, he urged borrowers to account for hidden charges such as late payment fees, application fees, and storage fees. “Calculate them and understand the real cost of the loan,” he emphasized.
Harassment by rogue lenders
Another major concern is unethical debt collection practices, including public shaming and harassment. “I’ve had incidents where people’s contacts were downloaded, and lenders sent messages to all their friends and family, exposing their debt situation. That is illegal,” Mutiso said firmly.
He revealed that the industry is taking action against such practices. “In the last year alone, two digital lenders have been fined for breaching data privacy laws. These lenders were the ones sending shaming messages to borrowers’ contacts.”
Debt repair and consumer protection
To tackle the growing debt crisis, Mutiso’s association has been working on a debt repair framework. “We’ve created a portal where borrowers can list all their loans, and we help consolidate them into one repayment plan with an extended repayment period,” he explained.
Financial literacy also plays a crucial role. “We have a responsibility to educate borrowers. One of the ways we’re doing this is by ensuring that loan terms, including interest rates, fees, and penalties, are clearly disclosed before a borrower takes out a loan. Some lenders even provide this information in Swahili and local languages to ensure full understanding.”
Mutiso stressed the need for borrowers to be more informed and cautious. “You don’t just scroll down, tick the box, and take the loan. Understand what you are signing up for.”
The future of digital lending in Kenya
While digital lending has undeniably boosted financial inclusion, the sector must strike a balance between accessibility and responsibility. “What we don’t want is to lump responsible lenders together with predatory ones. That’s why we push for minimum standards that all lenders must adhere to,” Mutiso noted.
As regulations evolve and consumer protection measures improve, borrowers must also take personal responsibility. “Borrowing is not bad. Borrow wisely. Borrow to grow, not to consume,”Mutiso concluded.
