83 per cent of Kenya’s microloans under Sh1,000 go unpaid, says CBK
CBK statistics show that default rates drop as the size of the loan increases, with loans between Sh1,000 and Sh5,000 showing a 69.4 per cent non-performing ratio, while loans ranging from Sh50,001 to Sh100,000 record the lowest default rate at 16.4 per cent.
A large portion of Kenya’s small digital loans are going unpaid, with borrowers failing to settle 83 per cent of loans below Sh1,000, according to the Central Bank of Kenya (CBK).
The figures reveal how difficult it has become for lenders to recover microloans, while larger loans are repaid more consistently.
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According to the Business Daily, the high rate of defaults appears linked to a regulation that prevents digital lenders from listing defaulters with loans under Sh1,000 on credit reference bureaus (CRBs).
CBK statistics show that default rates drop as the size of the loan increases, with loans between Sh1,000 and Sh5,000 showing a 69.4 per cent non-performing ratio, while loans ranging from Sh50,001 to Sh100,000 record the lowest default rate at 16.4 per cent.
The CBK started overseeing digital lending on December 23, 2021, under the Central Bank of Kenya (Amendment) Act, 2021, which established the CBK (Digital Credit Providers) Regulations, 2022.
The rules bar lenders from reporting defaulters of small loans to CRBs, prompting some lenders to increase the minimum loan amount above Sh1,000 so they can use CRB listings to encourage repayment.
“Other applicants are at different stages in the process, largely awaiting the submission of requisite documentation. We urge these applicants to submit the pending documentation expeditiously to enable completion of the review of their applications,” the CBK said.
Most digital loans are below Sh20,000, with repayment periods ranging from one week to two months.
They offer quick, collateral-free financing to millions of Kenyans for emergencies such as medical bills, school fees, or capital for businesses.
While praised for expanding financial access in a country where only about 40 per cent of adults have bank accounts, some lenders have been accused of exploiting borrowers with high-interest rates and aggressive collection practices.
The growth of mobile technology has spurred the rise of fintech firms targeting low-income Kenyans who cannot access traditional credit due to a lack of employment, collateral, or guarantors.
Over 700 digital lenders operate in the country, some backed by foreign investors, offering loans through smartphone apps.
These apps assess borrowers using mobile transaction data, contacts, social media activity, and online behaviour, approving and disbursing loans in minutes.
By the end of June, 5.5 million Kenyans had borrowed from the 126 CBK-licensed digital lenders, up from 2.4 million in December 2023.
Since their licensing, lenders have disbursed a total of Sh76.8 billion.
While the CBK recognises that digital loans are vital for emergencies and small business cash flow, it warns that very small loans may not generate enough earnings to support repayment.
“The elevated credit in the DCPs (digital credit providers) requires them to enhance credit risk management, including refining tools for identifying borrowers and their needs, to enable them to reduce loan default,” the regulator said.
“The DCPs rely on transactional and communication data as well as adverse ratings from the credit information system as a deterrent against potential defaulters. Yet, there is a tendency for borrowers to change their behaviour once they obtain the loan, especially borrowers of small amounts.”
Last week, the CBK licensed 27 additional digital lenders, bringing the total to 153, while over 547 applicants, or 78 per cent, remain on the waiting list.
The regulator is reviewing pending applications in collaboration with other agencies, including the Office of the Data Protection Commissioner, to ensure compliance.
Digital loans continue to grow in popularity due to their convenience, speed, and the ability to reach those excluded from the formal financial system. CBK oversight aims to protect consumers, promote responsible lending, and strengthen repayment practices while supporting a sector critical to financial inclusion.
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