The Growth of Digital Lending in Kenya
In the past decade, the advent of digital lending platforms has spawned an uptake in digital mobile loans.
Mobile applications now allow individuals to borrow money within minutes without needing to visit a bank.
As of September 2025, it is estimated that the Central Bank of Kenya has licensed 153 credit providers to operate in Kenya with about 700 similar applications pending in the pipeline
For many years these lenders operated in a largely unregulated environment. This led to several complaints from consumers, including:
- Extremely high interest rates
- Hidden fees and penalties
- Harassment and debt-shaming tactics
- Unauthorized sharing of borrowers’ personal data with persons who are not guarantors to the debt
To address these concerns, Parliament enacted the Central Bank of Kenya (Amendment) Act, 2021, which introduced regulation for Digital Credit Providers (DCPs).
Under this law:
- Digital lenders must obtain a license from the Central Bank of Kenya (CBK).
- Operating a digital lending business without a license attracts penalties of up to KES 5 million, imprisonment of up to three years, or both.
- Digital lenders must comply with the Data Protection Act, 2019.
- They must disclose loan terms clearly and participate in credit information sharing with Credit Reference Bureaus (CRBs).
The CBK also issued the Digital Credit Providers Regulations, which regulate lending practices, consumer protection, pricing and debt collection.
These reforms were designed to ensure borrowers are treated fairly and transparently.
Borrower Rights Under Kenyan Law
Kenyan law recognises that borrowers are also consumers who deserve protection.
The Constitution of Kenya at Article 46, guarantees consumers the right to protection from exploitative business practices.
As a borrower, you have several legal rights:
1. The Right to Clear Loan Information: A lender must clearly disclose:
- The interest rate
- Repayment period
- Any fees or penalties
- The total cost of the loan
Borrowers should never sign agreements that contain unclear or hidden terms.
2. The Right to a Written Loan Agreement
You are entitled to a written agreement outlining the terms and conditions of the loan including a term sheet where applicable
This agreement forms the legal basis of the relationship between borrower and lender.
- The Right to Fair Treatment
Borrowers must be treated without harassment, discrimination or intimidation.
Unethical practices such as threatening messages, humiliation or contacting unrelated third parties may violate consumer protection and privacy laws.
4. The Right to Notice of Default
If you fail to repay your loan, the lender must notify you and give you an opportunity to rectify the default before escalating enforcement measures.
Borrower Obligations
While borrowers have rights, they also have legal responsibilities.
When you take a loan, you must:
- Repay the loan according to the agreed schedule
- Provide accurate information during the loan application
- Inform the lender if your financial situation changes
- Comply with the loan agreement
Failure to meet these obligations may trigger legal consequences, including litigation or enforcement actions.
What Happens When a Borrower Defaults?
When a borrower fails to repay a loan, the lender has the legal right to pursue recovery.
However, recovery must follow due process.
1. Demand Letter
The process usually begins with a formal demand letter issued by the lender or their lawyer. This letter outlines the debt, the amount in arrears and gives the borrower time typically 7 to 14 days to settle the amount failure to which the entire facility may be called in
2. Negotiation or Alternative Dispute Resolution
Many disputes may be resolved through:
- Negotiation
- Mediation
- Arbitration
Courts often encourage these methods because they are faster and less costly and they promote the spirit of Article 159 (2) (c) of the Constitution of Kenya and Alternative Justice Systems Promulgated by the Judiciary of Kenya
3. Filing a Court Case
If the borrower fails to settle the debt, the lender may file a law suit in court. The appropriate court depends on the amount involved:
- Small Claims Court – claims up to Kshs. 1 million
- Magistrates’ Court – claims up to Kshs. 20 million
- High Court – claims above Kshs. 20 million
4. Court Judgment
If the court determines that the debt is valid, it will issue a judgment in favour of the lenderwhich results in a decree being taken out for execution of the Judgment
5. Enforcement of Judgment
Once judgment is obtained, the lender may enforce it through:
- A decree for attachment and auction of property
- Garnishee orders (attaching and freezing bank accounts or salary deductions)
- Civil jail in limited circumstances where proof can be shown that all other modes of execution have failed.
Recently however, the High Court hs determined that Rule 25(1) of the Small Claims Court Rules, which permitted the arrest and detention of debtors, was unconstitutional and exceeded the authority of the parent Small Claims Court Act.
Debt recovery must follow this legal process, and lenders cannot bypass it through harassment or unlawful pressure.
The In Duplum Rule: Protecting Borrowers from Excessive Interest
Kenyan law also limits how much interest lenders can charge once a loan becomes non-performing.
This protection is known as the in duplum (meaning: double the amount) rule, introduced under Section 44A of the Banking Act.
The rule states that interest on a loan cannot exceed the principal amount once the loan becomes non-performing.
A loan becomes non-performing after 90 days of non-payment.
In simple terms, if you borrowed Kshs.100,000, the total interest that can accumulate after default should not exceed Kshs.100,000.
However, Kenyan courts have debated whether this rule applies to all lenders.
In Mwambeja Ranching Company Limited & another v Kenya National Capital Corporation (2019), the Court of Appeal clarified that the rule applies to the total outstanding debt at any given time.
However, different High Court decisions have taken different approaches.
In Momentum Credit Limited v Kabuiya (2022), the court held that the rule did not apply to non-deposit-taking institutions, such as some microfinance lenders.
On the other hand, in Mugure & Others v Higher Education Loans Board (2022), the court expanded the rule to apply to government-backed lenders like HELB.
These conflicting decisions demonstrate that the scope of the rule is still evolving under Kenyan law.
Unfair Lending Practices
Despite the legal framework, several unfair practices still occur in the lending industry.
Some common issues include:
1. Hidden Fees and Excessive Interest
Some digital lenders advertise low interest rates but impose service fees, processing fees and penalty charges, which significantly increase the real cost of borrowing.
2. Harassment and Debt Shaming
Certain lenders contact borrowers’ friends, family members or employers in an attempt to pressure repayment.
This practice, often referred to as debt shaming, may violate:
- The Data Protection Act, 2019
- The borrower’s constitutional right to dignity and privacy
- Unauthorized Data Sharing
Some loan apps access borrowers’ contacts and personal data without proper consent and later use this information for debt collection.
The Office of the Data Protection Commissioner (ODPC) has fined lenders for such violations. In Mulla Pride Limited v Office of the Data Protection Commissioner (2025), the High Court dealt with a dispute arising from a penalty imposed on a digital lender after complaints that its loan applications accessed borrowers’ contacts and sent messages to third parties demanding repayment. The Office of the Data Protection Commissioner imposed a fine of KSh.2,975,000, reinforcing the principle that debt recovery cannot justify unlawful sharing of personal data.
What Courts Have Said About Fair Lending
Kenyan courts have repeatedly emphasised that lenders must act fairly, however where a person entered into a contract willingly courts are hesitant to interfere with the terms of the contract.
In Santowels Limited v Stanbic Bank (K) Limited (2024), the Supreme Court definitively ruled that under Section 44 of the Banking Act, banks are strictly prohibited from increasing interest rates on loans or facilities without the prior written approval of the Cabinet Secretary for Finance, effectively clarifying that the “rate of banking” encompasses interest rates and is not limited to administrative fees. The Court rejected the argument that the repeal of interest-capping laws had fully liberalized the sector, holding instead that while banks and customers have the freedom to contract, the bank’s discretion to vary those rates is not absolute and must operate within this statutory regulatory framework to protect consumers from exploitation.
What Borrowers Should Do Before Taking a Loan
Before borrowing money, consumers should take several precautions:
- Read the loan terms carefully
Ensure you understand the interest rate, penalties and repayment schedule. - Confirm the lender is licensed
Borrow only from lenders licensed by the Central Bank of Kenya. - Avoid loans with hidden or unclear charges
If the total cost of the loan is unclear, reconsider the agreement. - Protect your personal data
Be cautious about apps requesting access to contacts or personal information.
What to Do If a Lender Violates Your Rights
Borrowers who experience unfair practices can seek assistance from several institutions:
- Central Bank of Kenya (CBK) – for complaints against licensed lenders
- Office of the Data Protection Commissioner (ODPC) – for privacy violations
- Competition Authority of Kenya (CAK) – for unfair consumer practices
- Courts of law – to challenge illegal charges or harassment
Conclusion
Loans play a vital role in economic growth and financial inclusion. However, borrowing must occur within a framework that protects both lenders’ right to recover debts and borrowers’ right to fair treatment.
Kenyan law increasingly recognises the need to regulate the lending sector, especially digital lenders. Through legislation, regulatory oversight and court decisions, the legal system continues to define the boundary between lawful debt recovery and unlawful exploitation.
For borrowers, the key lesson is simple: understand the terms before borrowing, know your rights and seek help when those rights are violated. In Santowels (Supra)the Court restated the well settled position that where parties freely enter into an agreement, the court’s role is not to rewrite or alter the terms of that agreement. Instead, the court will enforce the contract as agreed by the parties unless there is a legal reason not to.
Such reasons must have the following salient ingredients:
- that the contract is unconscionable,
- the contract is induced by fraud or, duress,
- there is material misrepresentation, or
- the contract violates public policy
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. The author/website is not responsible for any errors or omissions and a party desiring legal advise should get in touch with the authors
