Digital Lenders in Spotlight as Borrowers Report Unfair Treatment

If there was ever a clear sign that Kenya’s booming digital lending industry is facing a credibility crisis, it is the sharp rise in consumer complaints over hidden charges, abrupt changes to loan terms and aggressive debt recovery practices.

What was once hailed as a revolutionary solution for expanding financial inclusion is increasingly becoming a source of distress for thousands of borrowers who say they are being trapped by unfair lending practices.

New figures from the Competition Authority of Kenya (CAK) paint a worrying picture of a sector struggling to balance rapid growth with consumer protection. Complaints against digital lenders jumped from 67 cases in the previous financial year to 355 in the year ending June 2025, reflecting growing frustration among borrowers who accuse lenders of misleading them about the true cost of credit and enforcing contracts in ways they never anticipated.

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The surge also placed financial services at the top of all consumer complaints handled by the competition watchdog.

Of the 915 complaints received across 20 sectors of the economy, 564—or 61.6 percent—were linked to financial institutions, with digital lenders accounting for the overwhelming majority. The complaints ranged from hidden fees and false representations to unilateral changes in loan agreements and questionable debt recovery tactics.

“The rapid growth of digital lending has undoubtedly expanded access to credit, but it has also exposed consumers to serious risks. Transparency and fairness must remain at the heart of every lending relationship,” a consumer protection expert said.

“Borrowers should never discover the true cost of a loan after signing an agreement. Full disclosure is not optional; it is a legal and ethical obligation,” the expert added.

Complaints Expose Growing Consumer Frustration

According to the CAK, digital lenders were repeatedly accused of making false and misleading representations while engaging in conduct considered unconscionable under Kenya’s competition and consumer protection laws. The regulator also investigated complaints involving banks, microfinance institutions and savings and credit cooperatives over non-disclosure of charges and unilateral alteration of contractual terms.

The authority noted that the explosion of mobile-based lending platforms has made borrowing easier than ever before. However, that convenience has come with significant risks as many consumers, attracted by instant loans, fail to fully understand the conditions attached to the credit they receive.

Microfinance institutions accounted for the second-highest number of complaints within the financial services sector, recording 113 cases or 20 percent of all financial services grievances. Saccos followed with 68 complaints, while commercial banks registered the fewest at 28 cases, representing just five percent of the sector’s complaints.

Outside financial services, wholesale and retail trade ranked second overall with 17.5 percent of complaints, followed by manufacturing at 3.6 percent and e-commerce at 3.3 percent.

The CAK investigated a total of 915 consumer complaints during the reporting period, representing a 37 percent increase from the 668 cases handled a year earlier. It concluded investigations into more than half the cases, with interventions resulting in consumer savings amounting to Sh21.4 million.

“Consumers are becoming more aware of their rights and are increasingly willing to report unfair treatment. That is an encouraging sign for accountability across the financial sector,” an industry analyst observed.

Borrowers Tell Stories of Inflated Loans and Repossessed Assets

Among the cases highlighted by the competition watchdog was that of Nelson Mwongela, who complained that African Capital Limited had inflated his loan balance from Sh177,720 to nearly Sh500,000 through charges he said had been imposed without his knowledge or consent.

Following investigations by the CAK, the disputed charges were waived and the loan account was subsequently closed, providing relief to the borrower.

Another complaint involved Gibson Mwenda, who accused Mwananchi Credit Limited of repossessing his vehicle barely two months after he secured financing. Mwenda argued that the vehicle was his primary source of income and that the lender moved to seize it before exhausting the dispute resolution mechanism provided for in the contract.

Although the CAK advised him to pursue the matter before the Small Claims Court, the case underscored growing concerns over the methods some lenders use to recover outstanding loans.

Other digital lenders mentioned in complaints handled by the authority included Mogo Auto Limited, Supreme Credit Acceptance Limited, Simple Pay Capital Limited and Premier Credit. Some investigations were closed after complainants failed to provide sufficient supporting evidence.

Vehicle repossessions, ballooning loan balances and unexpected charges often threaten livelihoods, particularly for informal sector workers who rely on financed assets to earn daily income.

“Access to credit should empower households and businesses, not push them deeper into financial distress through practices they never fully understood,” a financial inclusion researcher said.

Regulation Tightens as Industry Continues to Expand

Kenya has long been celebrated globally for pioneering mobile money and digital financial services, making it easier for millions of people to save, transfer money and access credit without traditional banking infrastructure. The same technological innovation, however, has fuelled the rapid rise of hundreds of digital lenders, many of which initially operated with little regulatory oversight.

Recognising growing concerns over predatory lending, Parliament amended the law in 2022 to grant the Central Bank of Kenya (CBK) powers to license and supervise digital credit providers. The reforms were intended to curb excessive interest rates, protect consumer privacy and restore discipline within the fast-growing sector.

The regulator has since intensified oversight. Earlier this week, the CBK licensed an additional 25 digital credit providers, bringing the total number of approved lenders to 252 since the licensing framework was introduced.

Despite the progress, the licensing process remains far from complete. More than 800 applications have been received by the central bank, with over 500 applicants yet to secure approval. Many remain at various stages of the review process after failing to submit all the required documentation.

Even as scrutiny increases, digital lenders continue to dominate enforcement actions relating to consumer rights and data privacy. Several firms have faced court decisions and penalties from the Office of the Data Protection Commissioner over unlawful handling of customer information and privacy breaches, attracting fines worth millions of shillings.

At the same time, the industry’s footprint continues to expand. According to the CBK, licensed digital credit providers had issued approximately 8.3 million individual loans valued at Sh150 billion by May 2026, underscoring both the growing demand for quick credit and the urgency of strengthening consumer safeguards.