This week, the Central Bank of Kenya (CBK) approved another set of digital credit providers (DCPs), bringing their total number to 153.
In addition, they have directed banks to adopt a new Risk-Based Pricing Model anchored on the use of credit scores in determining interest rates. Are the two actions parallel or consistent?
Financial health for individuals and institutions, including governments, is important to financial sector regulators like the CBK. The regulator is more concerned with the wellness of systemic financial institutions, whose failure can create economic catastrophes.
Subsequently, financial institutions are keenly focused on the financial health of their counterparties, including borrowers and suppliers.
Employers and landlords also prefer financially healthy individuals. Even in interpersonal relationships, financial health is often viewed as an asset. People with good financial health are rewarded with strong bonds, including long-term ones like marriage.
In the commercial space, especially capitalist markets like ours, where rational customers freely choose where to access goods and services, they are inclined to select financially healthy entities capable of providing the best products at the lowest price. Managing financial health is, therefore, critical for survival.
The benefits of managing financial health are immediate and visible. Not managing it can be catastrophic. Mortality rates for businesses across different sectors in Kenya stand at over 95 percent.
The primary reason for micro, small and medium enterprise failure has been shown to be the inability to manage finances, not a lack of business opportunities. Individuals who don’t manage their financial health end up in misery. Old wisdom captures it well: “A fool and his money are soon parted.”
In the credit market, borrowers are compelled to maintain financial health by their lenders, without which, access is limited. Regulators like the CBK demand that regulated entities track and report on their financial health using indices such as capital adequacy, quality of loan books, liquidity ratios, and profitability performance.
For Banks, failure to meet required thresholds can be risky, which is a real regulatory threat.
Unfortunately, over the past 20 years, Kenya’s credit landscape has transformed, and old tricks no longer work. Back then, accessing credit required time, paperwork, and in-person engagement.
Today, mobile phones have become digital wallets, banking halls have shrunk into apps, and loans are available at the tap of a screen.
With this digital shift comes many unknown-unknowns.
At the heart of this credit revolution are lenders of all kinds, including the recently regulated sub-sector of DCPs.
There are hundreds of entities providing digital credit in Kenya, and the number continues to grow. Commercial banks and microfinance banks continue to launch a wide range of mobile loan products: M-Shwari, KCB M-Pesa, Equitel’s Eazzy Loans, Timiza, Stawi, M-Coop Cash, HF Whizz, and PesaPap, among others. These platforms disburse loans in seconds. But speed comes at a cost.
The instant nature of these loans eliminates the traditional “pause” that loan applications once offered. Borrowers miss the time to reflect, compare options, or assess the consequences of borrowing.
A recent FinAccess survey on Kenyan consumer borrowers reveals that the number of digital loan users increased more than fivefold between 2021 and 2024. The increasing borrowing was shown to be directed at filling daily income shortfalls. On the lending institutions’ side, it is not well.
The CBK’s Monetary Policy Committee reports that non-performing loans hit 17.6 percent in April 2025—the highest level in over two decades. Personal and household loans are leading the defaults.
As access to credit becomes easier, we need to assess whether this convenience is helping or hurting financial health.
Despite new regulatory frameworks, predatory practices persist. For instance, to mitigate their risks, lenders are increasingly using alternative data to originate new credit.
They scrape data points such as mobile money usage frequency, airtime spending patterns, and even messaging behaviour to assess creditworthiness. When borrowers fall behind, rollover fees and penalties are imposed.
To cover default losses, many loans carry steep costs, often disguised as facilitation or service charges. These expenses can snowball, escalating the debt cycle.
Lenders need robust credit scores and borrower visibility tools for responsible lending. The tools need to assess a borrower’s total debt exposure before they can extend new loans. This reduces the likelihood of over-lending and serial borrowing.
The directive from CBK to shift loan interest rate pricing to a new Risk-Based-Pricing framework will be instrumental in driving responsible access to credit. As data subjects in the CRBs, they will demand visibility of their credit scoring data points.
Evidence suggests that lenders using such tools experience lower default rates and have over 30 percent better quality loan books. They also have healthier credit relationships with their customers.
The directive from CBK to shift loan interest rates pricing to a new Risk-Based-Pricing framework will be instrumental in driving responsible access to credit. As data subjects in the CRBs, they will demand visibility of their credit scoring data points.
We are entering an important phase where data and analytics will be key in driving financial health, that will benefit both lenders and borrowers, and the greater economy.
The writer is the CEO, Metropol CRB
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