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Loans by digital lenders nearly double to Sh55.2bn
The tenure of loans issued by the digital lenders is usually short, with most of their debt repayable within 60 days, allowing investors to use low capital to grow their books.
Loans issued by Digital Credit Providers (DCP) nearly doubled last year, signaling increased reliance on debt by households to meet daily needs.
Disclosures by the Central Bank of Kenya (CBK) show that Kenyans had borrowed Sh55.2 billion from DCPs as at the end of December 2024, up from Sh28.9 billion a year earlier, translating to a 91 percent increase.
The growth in loans followed an increase in the number of licensed DCPs from 32 at the end of 2023 to 85 in December 2024.
The number has since grown to 126 with 574 digital lenders awaiting clearance from CBK, pointing to investor appetite to enter the high-risk, high-return segment.
“Lending by Digital Credit Providers (DCPs) continued to grow, driven by an increase in the number of licensed providers. The average number of loans increased by 68 percent to 3.9 million in December 2024, from 2.3 million in December 2023. The average loan size remained largely unchanged,” said the CBK.
The average loan size was Sh13,917 in December 2024, up from Sh12,248 a year earlier.
DCPs are popular due to ease of access and speed of disbursement. A majority of the digital lenders do not conduct background checks with credit reference bureaus, opening a back door for those blacklisted by banks, saccos, and microfinance institutions to access debt.
DCPs do not demand collateral but rely on client usage of mobile money services to determine the amount that they qualify for and upgrade them to higher bands based on their settlement of previous debts.
The speed of disbursement also appeals as the cash is directly transferred to mobile money platforms.
“With the shift of customers’ preferences to more convenient delivery channels and an increase in the number of licensed DCPs, the banking sector has witnessed expansion of digital lending by DCPs,” said CBK.
DCP’s loan book was larger than that of microfinance banks, whose advances to customers stood at Sh31.1 billion as at the end of December.
The tenure of loans issued by the digital lenders is usually short, with most of their debt repayable within 60 days, allowing investors to use low capital to grow their books.
Customers usually pay existing debt to access new loans, making them perennial borrowers from digital lenders.
Their regulation by the Central Bank has also made them attractive to more borrowers, especially with the ban on social shaming.
“The regulation of digital credit providers has contributed to a marked increase in the usage of microfinance institutions, rising from 1.7 percent to 8.8 percent in 2024,” read the FinAccess Household Survey released in December 2024.
The digital lenders, who fall in the category of non-deposit taking credit providers, shall be required to sign up to a code of conduct which seeks to ensure the sound conduct of non-deposit taking credit business and instill confidence in the sub-sector under the new regulations.
