Kenyans borrow Sh15 billion monthly from digital lenders

A huge appetite for quick loans and reduced disposable incomes has seen borrowers take out Sh500 million daily from digital lenders, according to a new report by the Digital Financial Services Association of Kenya.

This is equivalent to a borrowing rate of Sh15 billion monthly or about Sh20 million per hour. The DFSAK report shows that over eight million Kenyans— about 16 per cent of the population—actively borrow each month from digital lenders.

The need for collateral to secure financing from banks has seen many Kenyans opt for these financing channels with the survey showing that the boda boda sector dominates, with nearly all riders relying on non-deposit-taking credit providers.

Despite DFSAK chairman Kevin Mutiso maintaining that the digital lending industry has become crucial for growth and lifting millions out of poverty, the findings show that a majority borrow for survival.

“A significant majority of consumers reported that the increased cost of living was the primary reason for their financial challenges. This challenge was further compounded by expenses being higher than income,” notes the report.

This, the survey says, led to increased incidents of income delays, lack of capital, loan burdens, job losses and business closures in 2024.

DFSAK also raised concerns over declining disposable income among consumers, despite widespread optimism about future financial prospects.

The findings indicate that while 75 per cent of respondents expressed confidence in their financial outlook, only 26 per cent reported an increase in income over the past six months.

The gap suggests that many consumers are grappling with immediate financial pressures, limiting their ability to save and invest.

“As a result of economic strain, consumers were increasingly adopting coping mechanisms to manage their finances. A majority (55per cent) of those who reported higher spending in the preceding six months were actively cutting down on expenses and reducing their spending on non-essential items,” the report reads in part.

Findings show that when choosing a digital lender, loan collection tactics are increasingly determining which lenders consumers will borrow from to avoid rogue lenders.

Consumers are also considering interest rates, repayment period and loan processing time.

The association says that by financing an average of 100,000 smartphones monthly, the lenders are significantly enhancing internet access and digital participation.

“This growing access to digital platforms is expected to play a crucial role in bridging financial gaps and expanding economic opportunities for many Kenyans,” said Mutiso.

DFSAK welcomed the Business Laws (Amendment) Act 2024, which took effect in January, placing digital credit providers under Central Bank of Kenya regulation. This, he said, has brought much-needed clarity to the industry while strengthening consumer protection.

“The association has already slashed consumer complaints from 4,000 a month to just a handful through the adoption of a stricter code of conduct. It is also working closely with the Office of the Data Protection Commissioner to establish further safeguards,” said Mutiso.