Digital credit providers (DCPs) disbursed an additional Sh43.7 billion in the six months ended June 2026 to take their total outstanding loan book to Sh153.8 billion, signalling consumers’ increased reliance on costly short-term loans to meet pressing needs.
Data from the Central Bank of Kenya (CBK) shows loans from digital lenders grew 39.6 percent in six months from Sh110.1 billion in December 2025 as the number of licensed DCPs increased to 281 from 252.
The number of persons borrowing from the DCPs grew 32 percent to 8.9 million from 6.74 million, indicating the average size of loans taken from the digital lenders grew to Sh17,280 up from Sh16,335.
“The DCPs advanced Sh153.8 billion to retail borrowers as of June 2026, more than all the lending by microfinance banks. Most of the loans are below KES 20,000, a niche market for DCPs’ model with tenures ranging from 1 week to 2 months,” reads a report from the CBK on the stability of the country’s financial sector.
“The short tenure of loans makes them relevant for meeting emergency needs and working capital for small businesses. However, the loans are too small to enable households and businesses to make investments that have significant impact on earnings,” added the regulator.
A survey by Tala, one of the top digital lenders, found approximately 45 percent of borrowers used loans to stock businesses, 37 percent for school fees and 23 percent to cover daily needs.
DCPs are riding on the benefits of digitalisation, adopting technology in identifying customers and tailoring products to their needs, leveraging transactional and communication data to develop credit scores for customers and enforce loan obligations, which minimises credit risks.
By skipping credit bureau checks, DCPs open the door for borrowers blacklisted by banks, Saccos, or microfinance institutions to secure loans.
Instead of demanding collateral, DCPs use mobile money transaction history to set loan limits and reward prompt repayment with higher borrowing bands.
DCPs price their loans highly, citing the higher risk they bear due to them widening access to credit for risky borrowers.
Digital lenders charge a daily flat rate of approximately 0.6 percent, translating to 24 percent per month compared to 14.4 percent averagely charged by commercial banks on loans.
“The cost of recovering loans also exceeds the loan extended, which discourages the DCP from recovering the loans. This entrenches loan delinquency in the financial system,” said CBK.
The Central Bank started regulating digital credit providers in 2022 in a bid to rein in the lenders who were charging extreme interest rates and using crude means to recover from defaulters, including social shaming.
The average size of loans issued by DCPs has been growing, indicating households with higher incomes are turning to digital lenders to meet their short-term needs. Average loan size stood at Sh12,248 in 2023 when DCPs were introduced by the CBK, rising to Sh13,917 in 2024, closing 2025 at 16,341 before the current mean of Sh17,280.
Borrowers have also found solace in the Competition Authority of Kenya (CAK) riding on regulation in the sector.
Data from the CAK show that complaints from borrowers rose to 355 cases in the year to June last year, up from 67 the previous year.
Most grievances against the digital lenders were about false and misleading representations and unreasonable conduct.
Before 2022, hundreds of digital lenders were not covered by any of the existing laws. More than 500 digital lenders are yet to get approval from the CBK, which requires the DCPs to have a minimum capital of Sh20 million, with the regulator proposing to increase it to Sh50 million.
This means more than 548 digital lenders are at various stages of the review process, where most are yet to submit the documentation required to complete licensing.
The regulator is also pushing for the digital lenders to conduct financial literacy lessons among their borrowers. CBK is concerned that digital lenders are enticing borrowers with offers of quick loans, which the public is signing up for without a full understanding of the terms. This is resulting in a growing number of households experiencing debt distress. Data from the FinAccess Household Survey showed that 16.6 percent of Kenyan homes were experiencing debt distress, up from 10.3 percent in 2021.
The CBK has proposed that lenders stop automatically upgrading borrowers to higher borrowing limits upon repayment of a loan and instead analyse their finances afresh before each review.
