A new report by the Central Bank of Kenya (CBK) has revealed that a majority of Kenyans borrowing small digital loans particularly those of Ksh 1,000 or less are defaulting, raising concerns over the sustainability and impact of digital credit in the country.
The Kenya Financial Sector Stability Report released on September 2025, shows that loans of Ksh 1,000 and below recorded a non-performing loan (NPL) ratio of 83.1% as of June 2025. This means that eight in every ten borrowers in this category failed to repay their loans.
Similarly, loans ranging between Ksh 1,000 and Ksh 5,000 had a default rate of 69.4%, indicating that nearly seven in every ten borrowers in this bracket were unable to repay their debt.
The CBK report underscores the growing trend of small-ticket digital borrowing in Kenya. As of June 2025, digital credit providers (DCPs) had disbursed Ksh 76.8 billion to 5.5 million borrowers. While the demand for digital credit continues to surge, the high default rates have raised red flags among regulators and financial experts.
There are currently 153 digital lenders registered by CBK, with over 700 applications submitted since 2022 a sign of increasing interest in the sector.
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This growth is further reflected in the data from the Digital Financial Services Association of Kenya (DFSAK), which reports that Kenyans borrow an average of Ksh 423 million daily from digital lenders.
DFSAK Chairman Kevin Mutiso said this daily borrowing figure amounts to Ksh 13 billion annually, disbursed by just 40 of the association’s registered members. He noted that while small loans are typically short-term with maturities of less than 60 days they remain essential in meeting individual needs and supporting small business operations.
However, financial experts have cautioned that the vast majority of these loans are used for consumption rather than production, meaning they may have limited long-term economic value.
“These loans are largely used to meet day-to-day expenses, and therefore, they do not significantly contribute to economic growth,” one analyst noted.
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Mutiso, however, defended the role of digital lenders in economic development. He highlighted that 68.4% of the 2.4 million motorbikes in Kenya are financed through digital credit, demonstrating the sector’s role in empowering livelihoods, particularly in the boda boda industry.
Additionally, digital lenders have played a part in financing over 230,000 smartphone acquisitions, expanding digital access across the country.
As digital credit becomes increasingly embedded in the financial lives of Kenyans, the CBK and other stakeholders are now faced with the task of balancing access to credit with borrower protection and financial sustainability.
The high default rates could trigger tighter regulations in the future, as the central bank continues to monitor risks associated with uncollateralized lending.
By Obegi Malack
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