Is Kenya Building a Credit Crisis? The Risks of Licensing More Digital Lenders
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Defaults on digital loans in Kenya have risen to record levels, outpacing arrears in the banking sector, as the Central Bank of Kenya (CBK) expands licensing of new providers. Analysts warn the combination of rising defaults, weaker credit reporting, and aggressive expansion of digital credit could set the stage for a credit crisis.
By December 2024, the default rate for digital loans stood at 40%, more than double the banking sector’s non-performing loan (NPL) ratio of 16.4%. The NPL ratio rose to 17.6% by June 2025, the highest in 20 years.
Nearly 14 million digital loan accounts were flagged for default, while the 2024 FinAccess Household Survey found that 16.6% of adult borrowers had fully defaulted, up from 10.7% in 2021.
Despite rising arrears, CBK in September licensed 27 new digital credit providers, bringing the number of licensed DCPs in Kenya to 153. Since 2022, more than 700 applications have been filed. Regulators say approvals are based on reviews of business models, governance, and consumer protection standards.
Yet the lending model itself raises risks. About 8 million Kenyans borrow an estimated KSh15 billion monthly through mobile loans. Much of this credit is used for consumption or emergencies rather than investment, leaving borrowers without repayment capacity.
Loan stacking has become widespread, and older research shows 70% of repeat borrowers default again once they gain new credit.
High costs compound repayment problems. Some lenders charge annual rates above 200%, with additional fees pushing costs above 400%. Risk models often prioritize willingness to repay over financial capacity, fueling over-lending.
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The shift in credit reporting has further clouded the picture. Negative listings at Credit Reference Bureaus dropped to 933,551 in 2023 from 2.2 million in 2019 after government restrictions on blacklisting. While easing pressure on households, the change limits lenders’ ability to screen repeat defaulters.
Losses are mounting. Between KSh54 billion and KSh72 billion of digital loans issued in 2024 were written off, and some providers cut lending for loans below KSh1,000 to limit risk. CBK data shows stress across sectors, with agriculture posting a 20% NPL ratio and real estate 18% by late 2024.
The banking sector’s exposure is also rising. Commercial banks’ digital portfolios had a 16.4% default rate by the end of 2024, suggesting spillover risks from non-bank lenders into the regulated system.
The expansion of digital credit has improved access for millions, but with defaults at 40%, weakened visibility on borrower history, and billions in bad loans, Kenya faces growing pressure to balance inclusion with financial stability. The pace of licensing raises the question of whether oversight can keep up with the risks.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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