Kenya wants lenders to prove borrowers can repay before approving loans

Kenyan regulators will now require lenders to prove borrowers can repay before issuing loans, a major shift in a market defined by instant loan approvals through mobile apps and automated scoring systems.

The new rules are contained in a March 2026 Financial Consumer Protection Framework draft backed by the Central Bank of Kenya, the Capital Markets Authority (CMA) and the Communications Authority of Kenya (CA), and would apply across banks, fintechs and mobile money providers.

The proposed rules would fundamentally change how credit works in one of Africa’s most active digital lending markets. Kenya has more than 227 licenced digital credit providers, but default rates have drawn sustained regulatory concern. The framework is the regulators’ attempt yet to address a market that expanded faster than the rules governing it.

It would require lenders to check income, expenses and existing debt and document whether a borrower can afford a loan before issuing it, applying the same requirement across banks, fintechs and mobile money providers. Presently, lenders increase borrowing limits based on a customer’s repayment history, without fully assessing their ability to take on additional debt.

“A Financial Services Provider (FSP) shall not provide a credit product… unless they have first undertaken a reasonable assessment to confirm the retail consumer’s ability to repay the credit without financial hardship,” the draft noted.

Lenders must base that assessment on “appropriately reliable information” about a borrower’s financial position, including income, expenses and existing obligations. The requirement sets a baseline for how credit is issued, limiting the use of models that rely primarily on behavioural data or predictive scoring.

Kenya’s credit market spans a wide range of providers. Banks such as KCB Bank Kenya, Equity Bank Kenya and Co-operative Bank of Kenya offer digital loans through mobile channels while operating under prudential regulation and established credit assessment processes.

Alongside them are telecom-led products like Safaricom’s M-Shwari and Fuliza, which extend credit directly through mobile money platforms. Standalone digital lenders such as Tala and Branch MFB rely on app-based onboarding and automated decision-making.

The lending market has expanded rapidly, but regulatory oversight has not kept pace. The Central Bank has so far licenced 227 digital credit providers following a clean-up of previously unregulated apps. As of February 2026, licenced lenders had disbursed 7.5 million loans worth KES 133.5 billion ($1.03 billion), reflecting the scale of mobile-based credit uptake.

Default rates, particularly on small loans, have drawn regulatory concern. Data from the Central Bank shows that loans below KES 1,000 recorded default rates of more than 80%, while loans between KES 1,000 and KES 5,000 recorded default rates of about 69%.

Larger digital loans perform better, but overall default rates for digital lenders have been reported as high as 40%, more than double those in the banking sector.

The draft framework moves to standardise expectations across these providers by introducing a common requirement for affordability and suitability. Digital lenders typically approve loans using alternative data such as mobile money transactions, airtime usage and device metadata, with decisions made in seconds and little verification of income or expenses.

Under the proposed rules, lenders would need to document how each loan aligns with a borrower’s financial capacity and assess whether the product is appropriate for that borrower.

The framework also highlighted concerns around over-indebtedness, hidden fees, misuse of data and uneven consumer safeguards. It seeks to limit the build-up of unsustainable debt rather than manage defaults after the fact by requiring affordability checks at origination.

The proposal also links loan origination to lenders’ handling of repayment difficulties. Firms would be expected to engage borrowers who show signs of distress and consider options such as restructuring or deferred payments before taking enforcement action.

The framework applies across the financial sector, covering banks, mobile money operators and digital lenders. It sets common standards on disclosure, complaint handling, product design and digital platforms.

If adopted, the rules would require lenders to not only justify loan issuance, but also the decision driving it.