What happened

The Central Bank of Kenya (CBK) has announced that the set of rules governing digital lenders will be withdrawn and replaced by a new, comprehensive credit regime. The change, communicated through a recent CBK circular, signals the regulator’s intent to bring online‑only lenders under the same supervisory framework that applies to traditional banks and micro‑finance institutions. Under the new regime, digital platforms such as Khusoko will need to obtain a credit licence, submit detailed loan‑portfolio reports and adhere to stricter capital and consumer‑protection standards. The shift is described by CBK as a response to rapid growth in fintech‑driven credit and concerns that existing guidelines were insufficient to safeguard borrowers.

Context and background

Digital lending in Kenya accelerated after the 2019 amendment to the National Payment Systems Act, which allowed non‑bank entities to offer short‑term credit via mobile phones. Platforms like M-Shwari, Branch, and the newer entrant Khusoko quickly amassed millions of users, attracted by fast approval times and minimal paperwork. However, the rapid expansion also exposed gaps: interest rates sometimes exceeded 100% per annum, repayment schedules were opaque, and data‑privacy incidents raised alarm among consumer groups. In 2022 CBK introduced a set of digital‑lender guidelines aimed at capping interest rates, mandating transparent disclosure and requiring lenders to maintain a minimum capital base.

Despite those guidelines, enforcement proved challenging. Many fintechs operated under the radar, leveraging partnerships with mobile network operators to sidestep direct licensing. Moreover, the guidelines focused narrowly on interest‑rate caps and did not address broader credit‑risk management, loan‑portfolio diversification or the need for robust underwriting models. Stakeholders, including the Kenya Bankers Association and the Capital Markets Authority, repeatedly called for a unified regulatory approach that would treat digital lenders as credit providers rather than a separate, loosely‑regulated category.

The decision to replace the digital‑lender rules with a credit regime emerged from a series of consultations held throughout 2023 and early 2024. CBK convened fintech innovators, consumer‑rights NGOs, and traditional banking representatives to map the evolving credit landscape. The resulting policy paper highlighted three core concerns: borrower over‑indebtedness, systemic risk from un‑monitored loan books, and the need for data‑sharing standards to improve credit scoring. By aligning digital lenders with the existing credit‑licensing framework, CBK aims to create a level playing field, improve data transparency and give the regulator clearer tools to intervene when necessary.

Compared with what is normal

Historically, Kenyan lenders—whether banks, SACCOs or micro‑finance institutions—have operated under the Banking Act and the Micro‑Finance Act, both of which require periodic reporting to the regulator, minimum capital adequacy ratios and consumer‑protection clauses. The previous digital‑lender guidelines were an outlier, offering a lighter touch that focused mainly on interest‑rate ceilings. The new credit regime aligns digital platforms with the same reporting frequencies (monthly and quarterly), capital requirements (usually a minimum of Sh10 million for small credit institutions), and dispute‑resolution mechanisms that traditional lenders already follow. In practice, this means a fintech that previously needed only to publish a simple fee schedule will now have to submit detailed loan‑performance data, maintain a risk‑management committee and undergo regular supervisory inspections—steps that were not required under the earlier, more permissive rules.

• Interest‑rate caps: Previously limited to 30% per annum for digital loans; under the credit regime, rates will be subject to the same ceiling as banks (typically 26% per annum) unless a waiver is granted.
• Capital requirements: Digital lenders now must hold a minimum capital base comparable to small banks, whereas earlier they could operate with as little as Sh1 million.
• Reporting frequency: Monthly portfolio reports replace the quarterly disclosures that were the norm under the old guidelines.
• Consumer‑protection: Mandatory dispute‑resolution channels and a 30‑day cooling‑off period are now required, matching traditional credit institutions.

Why it matters

For Kenyan SMEs and individual borrowers, the new credit regime could have both positive and negative consequences. On the positive side, tighter supervision is likely to curb predatory lending practices, reduce the incidence of hidden fees and improve the overall quality of credit information available to lenders. This could translate into lower default rates and more sustainable borrowing costs over time. On the downside, the added compliance burden may increase operating costs for digital lenders, which could be passed on to borrowers in the form of higher interest rates or stricter eligibility criteria. Small businesses that have relied on quick, unsecured micro‑loans from platforms like Khusoko may find the approval process lengthened as lenders adopt more rigorous underwriting standards. Moreover, the requirement for a formal credit licence may deter new entrants, potentially slowing the pace of innovation in Kenya’s fintech sector.

Practical steps

• Review existing loan agreements: Check the terms for any clauses that may be affected by the new interest‑rate caps or cooling‑off periods.
• Strengthen internal credit controls: If you operate a fintech or a small lending unit, begin preparing the documentation and risk‑management frameworks required for a credit licence.
• Engage with your bank or financial advisor: Understand how the new regime may affect your borrowing costs and explore alternative financing options, such as trade credit or equity financing.
• Stay informed: Monitor CBK communications and attend industry webinars to keep abreast of implementation timelines and any transitional provisions.

Financial Management & Analysis services at Beavoren Ventures can help SMEs navigate the regulatory shift, assess the impact on cash flow and restructure financing strategies to stay compliant while protecting profitability.

Book a consultation with Beavoren Ventures today and let us handle your compliance, books, and advisory in one place.

Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.