NAIROBI, Kenya – A large share of Kenya’s smallest digital loans are going unpaid, with borrowers defaulting on 83 per cent of loans below Sh1,000, new data from the Central Bank of Kenya (CBK) shows.
The report underscores the growing challenge facing lenders in recovering microloans, even as repayment rates improve for larger facilities.
According to CBK statistics, non-performing loans drop significantly with higher amounts: loans between Sh1,000 and Sh5,000 carry a 69.4 per cent default rate, while facilities worth Sh50,001 to Sh100,000 record the lowest at 16.4 per cent.
Industry analysts link the high default rates on small loans to regulations barring lenders from listing defaulters of loans below Sh1,000 with credit reference bureaus (CRBs).
This has pushed some lenders to raise their minimum loan thresholds above Sh1,000 in order to leverage CRB listings as a repayment incentive.
CBK, which began regulating digital credit providers in December 2021, says the trend highlights the need for stronger credit risk management.
“The elevated credit in digital credit providers requires them to enhance credit risk management, including refining tools for identifying borrowers and their needs, to reduce loan default,” the regulator said.
Digital lending apps — now licensed at 153 providers with 5.5 million active borrowers — have disbursed Sh76.8 billion since regulation began.
Most loans are under Sh20,000, typically repayable within weeks and used to cover emergencies such as medical bills, school fees, or business capital.
While the apps have boosted financial inclusion in a country where only 40 per cent of adults hold bank accounts, they have also faced criticism over high interest rates and aggressive collection practices.
The CBK says it continues to vet over 500 pending license applications in collaboration with the Data Protection Office to ensure compliance and consumer protection.
Despite the challenges, demand for mobile-based credit keeps rising, driven by accessibility, speed, and reach among low-income earners excluded from traditional banking.
