No More Pressure From Loan Apps Under New Kenyan Law

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Borrowers from non-deposit-taking microfinance institutions (MFBs) in Kenya are set to benefit from strengthened protections against abusive debt collection practices, thanks to recent amendments to the Microfinance Act.

The revised law, part of the Business Laws (Amendment) Bill, 2024, officially came into effect on January 1, 2025.

The new regulations prohibit microfinance lenders from employing harassment, violence, or threats during loan recovery. This also includes intimidation of guarantors or any individuals connected to the borrower.

According to Section 53(2) of the updated Act, non-deposit-taking microfinance businesses are expressly forbidden from:

Harassing, abusing, or oppressing borrowers, guarantors, or any related persons during debt collection.
Threatening or using violence or illegal methods to recover loans.
Employing obscene or profane language in debt recovery efforts.

In addition to curbing harassment, the amendments mandate greater transparency from microfinance lenders. Borrowers must be provided with clear and accurate information regarding:

Loan terms and conditions.
Financial costs, including interest rates and associated fees.
Repayment schedules and procedures.

The Act also ensures borrowers are entitled to the protection of their personal data, and their possessions cannot be seized unlawfully, aligning with Article 31 of the Constitution and the Data Protection Act.

Read: CBK Grants Licenses to 7 New Digital Credit Providers

Furthermore, lenders are now prohibited from charging any interest, fees, or penalties unless these terms are explicitly stated in a contractual agreement between the lender and the borrower.

The revised law extends the protections already granted to digital credit users to borrowers of physical microloans. This means all microfinance clients, regardless of the mode of borrowing, are entitled to be informed of the full costs of their loans before issuance.

Under the amended Act, individuals or entities conducting non-deposit-taking microfinance activities before the implementation of the new law are allowed to continue their operations.

However, they must apply for a license within six months and comply with the updated Act, associated regulations, and directives issued by the Central Bank of Kenya (CBK).

Previously, digital lenders employed tactics such as sending debt collection agents to contact borrowers’ friends and family or threatening to report their loan status to their employers.

According to ODPC Immaculate Kassait, over 1,000 service firms, including digital lenders, educational institutions, hospitals, and telecommunications companies, were under investigation for privacy violations in 2024, with most complaints centered on the misuse of creditor data by digital lenders.

Digital lending apps usually request access to users’ private information—contacts, text messages, location, and calendar—upon installation. While this data is intended for evaluating loan eligibility, unscrupulous lenders misuse it when borrowers default.