How a Layered Licensing System Could Transform Kenya’s Digital Lending Market

Kenya’s National Treasury is introducing a new licensing framework for non-deposit-taking credit providers (NDTCPs) aimed at tightening oversight of the country’s fast-growing digital lending sector.

Treasury Cabinet Secretary John Mbadi told the Senate that the proposed Business Law (Amendment) Act, 2024, would strengthen supervision of dominant lenders while easing entry requirements for smaller, lower-risk operators.

Data from the Treasury shows high market concentration, with the top 10 lenders out of 126 licensed NDTCPs holding 72.6% of total loans, or Sh45.5 billion of Sh76.8 billion.

If implemented, the plan would establish a layered licensing system, where smaller lenders with limited capital and loan portfolios would face simplified requirements, while larger firms would be subject to detailed examinations and ongoing CBK oversight.

The reforms would also cover newer credit models, including buy-now-pay-later schemes, peer-to-peer lending, and pay-as-you-go financing, as credit becomes increasingly integrated into everyday transactions and digital platforms.

Consumer protection will be a central feature, with penalties for abusive practices rising to Sh2 million from Sh500,000, and lenders would be required to maintain physical offices, fully disclose credit costs, and comply with strict debt collection and data privacy standards.

The 2024 Business Laws (Amendment) Act mandates CBK licensing for all NDTCPs, including fintechs and asset financiers, aiming to curb predatory lending and enforce ethical practices.

Draft NDTCP Regulations for 2025 outline the layered approach, under which companies with capital above Sh20 million must obtain a license, while smaller players may register, and their directors are subject to “fit-and-proper” assessments.

Reporting to Credit Reference Bureaus will be limited to defaults exceeding Sh1,000, and violations could trigger fines of up to Sh20 million or three times any financial gain, with potential criminal liability for individuals.

The reforms could drive market consolidation, as smaller players struggle with compliance costs, while larger lenders may benefit from clearer regulatory standards.

Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.