Kenyans’ appetite for digital loans remains strong despite high repayment costs and mounting financial risks, the Central Bank of Kenya’s 2024 Financial Sector Stability Report reveals.
The report shows that about 18.2 percent of adults are borrowing from more than one digital lender at the same time, a trend that has raised alarms over debt distress.
Many of these borrowers are caught in a cycle of refinancing one loan with another, leading to ballooning costs and persistent arrears.
Digital loans now account for nearly 40 percent of all new credit taken by households, with mobile apps dominating short-term borrowing.
Their appeal lies in speed and convenience: loans can be approved in minutes without collateral or long paperwork. But this ease comes at a price.
The report indicates effective annual interest rates on digital loans often exceed 130 percent, far higher than traditional bank loans.
For many Kenyans, especially young people and those in informal work, these loans are used for survival rather than investment. Borrowers often rely on digital credit to pay school fees, buy food, or cover emergencies.
As a result, repayment stress is high. The CBK warns that a growing share of households are falling behind, with digital lending emerging as a key driver of financial distress.
The regulator has pledged to step up oversight of digital lenders, many of whom operate outside the traditional banking framework. It has also called for greater financial literacy to help consumers make informed choices.
Despite the risks, fintech loans continue to grow because they fill a gap left by banks, especially for low-income earners. Unless better safeguards are put in place, the loans that millions depend on may deepen household vulnerability instead of providing relief.
