The default rate on Kenya’s popular digital loans surged to as high as 40% in the year ending December 2024, according to a local daily analysis.
The Digital Financial Services Association of Kenya (DFSAK) estimates that it has lent KES 15 billion ($116.11 million) each month to over eight million Kenyans, totaling approximately KES 180 billion ($1.3 billion) in disbursements for the year 2024.
This suggests that between KES 54 billion ($418 million) and KES 72 billion ($557 million) of the total disbursements have been defaulted on. In comparison, defaults on commercial bank loans were 16.4% at the end of December 2024, slightly decreasing from 16.5% in October 2024 and 16.7% in September 2024.
The surge in defaults on both commercial bank and digital loans occurred against the backdrop of high interest rates throughout 2024, as the CBK raised its benchmark rate to combat rising costs and exchange rate pressures.
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Elevated interest rates restricted access to credit for businesses and households while simultaneously driving up default rates as borrowers struggled to meet higher repayment obligations.
To mitigate the rise in non-performing loans (NPLs), commercial banks have set aside provisions for expected credit losses, alongside implementing measures such as debt write-offs and loan restructuring, and digital lenders are also taking a similar approach.
“This year [2025], we want to focus on the bad debts allowable to enable us to reasonably write off unpaid principal for tax purposes.
This conversation is well underway,” said DFSAK Chairman, Kevin Mutiso, in the industry’s annual report.
The digital lenders were a subject of debate in the 2022 Kenyan Presidential Election where the eventual winner, President William Ruto, attacked them for sending borrowers to lending blacklists. He would later launch the Hustler Fund in November 2022, a consumer-friendly lending platform.
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The Hustler Fund was also reportedly experiencing a higher default rate on repayments compared to competing products from commercial banks, SACCOs (Savings and Credit Cooperative Organizations), and microfinance banks.
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Meanwhile, the Central Bank of Kenya (CBK) took control of the digital lending sector after constant complaints from Kenyans about harmful practices, requiring all operating lenders in the country to apply for licenses. According to the bank, a Kenya government process gave the apex bank new powers which came into effect on December 23, 2021.
The Central Bank of Kenya
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The harmful practices by unregulated lenders included high costs, unethical debt collection methods, and misuse of personal data.
By October 2024, the CBK had approved licenses to 85 lenders. Meanwhile, the apex bank has received at least 730 applications since March 2022.
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