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Banks and digital lenders will have to reassess borrowers’ financial capacity before increasing their loan limits under draft rules aimed at curbing predatory lending.

Financial regulators, including the Central Bank of Kenya (CBK) and the Sacco regulator, say lenders must evaluate borrowers’ income, expenses and assets afresh before upgrading loan limits.

Currently, banks and digital lenders increase borrowers’ limits based on repayment of previous loans, without assessing their ability to service new facilities.

Regulators say this practice has saddled both banked and unbanked borrowers with costly, mounting debt.

Tighter rules

‘A Financial Service Provider (FSP) shall not provide a credit product, or an increase in an existing loan or credit limit, to a retail consumer unless they have first undertaken a reasonable assessment to confirm – the retail consumer’s ability to repay the credit without financial hardship and that the credit is likely to be suitable in meeting the retail consumer’s needs and objectives in relation to credit,’ say the draft consumer regulations.

‘An FSP shall take reasonable steps to obtain appropriately reliable information about the retail consumer’s financial capability, including, without limitation, the consumer’s income, expenses, assets and other financial liabilities and commitments,’ the regulations add.

Banks have stepped up the supply of digital loans, with customers able to access up to Sh3 million via mobile applications, often in less than five minutes.

By offering quick, collateral-free credit to largely unbanked populations, digital lenders have expanded access to finance for needs ranging from medical bills and school fees to business capital.

Credit boom

Economists have hailed this growth for boosting financial inclusion in a country where only about 40 percent of people have a bank account. However, customers and digital rights groups have accused some lenders of using unethical practices to profit from vulnerable borrowers.

With mobile penetration rising, a wave of fintech start-ups has emerged to tap demand for credit among low-income Kenyans who lack formal employment, collateral or guarantors.

Hundreds of digital lenders operate in Kenya – some backed by Silicon Valley and Chinese investors – and are available on platforms such as the App Store and Google Play.

Using machine learning algorithms, these apps assess borrowers’ creditworthiness by scanning personal data on their phones, including contacts, mobile money transactions, social media activity and web history.

Easy credit

This approach has enabled lenders to raise borrowers’ limits without conducting fresh assessments of their financial health.

Within minutes, loans – ranging from Sh500 to Sh500,000 – are disbursed directly to mobile money accounts.

Demand for such loans has surged.

NCBA Group, which hosts Fuliza and M-Shwari in partnership with Safaricom, disbursed Sh1.34 trillion through the two platforms last year.

KCB Group reported a 30 percent increase in digital loans to Sh544 billion, while Equity Group said 88.4 percent of its credit was issued through digital channels, underscoring the shift away from branch-based lending.

Debt risks

‘The rapid expansion of digital credit has raised concerns about over-indebtedness and consumer protection, as many borrowers take on multiple short-term loans for consumption without adequate safeguards,’ said CBK.

Digital lenders remain popular due to ease of access and speed of disbursement.

Many do not conduct background checks with credit reference bureaus, creating a back door for borrowers blacklisted by banks, Saccos and microfinance institutions.

Digital credit providers (DCPs) do not require collateral but rely on mobile money usage patterns to determine loan limits, which are then increased based on repayment history.

CBK data shows that 16.6 percent of borrowers as of September last year were over-indebted, meaning they had more debt than they could repay.

The regulator aims to cut over-indebtedness by 30 percent over the next three years through the proposed rules.

Relief measures

Under the draft regulations, lenders will also be required to support distressed borrowers, including offering repayment holidays and restructuring loans before resorting to asset recovery or guarantor enforcement.

‘FSPs shall act promptly to offer reasonable assistance to retail consumers showing signs of difficulty in making their repayments, to help prevent their situation from deteriorating where this is possible,’ the draft states.

‘Before taking any enforcement action, FSPs shall consider and propose potential assistance appropriate to the consumer’s circumstances.’

The banking sector’s default rate stood at 15.6 percent in March, improving from 17.6 percent at the end of June. Saccos recorded 10.6 percent non-performing loans as of end-2024, above the global benchmark of five percent.

Digital credit providers had the highest default rate at 40 percent, according to CBK, signalling gaps in assessing borrowers’ ability to repay.

A familiar strategy has long shaped how many Kenyan investors approach the stock market: buy, hold, and wait. Sometimes that wait stretches for decades, driven by the belief that patience will eventually pay off.

The idea is simple; time in the market smooths volatility, and doing nothing is often the safest move.

But today’s market conditions are beginning to challenge that thinking.

As markets become more dynamic, a purely passive approach can leave investors exposed during downturns or periods of stagnation.

This has opened the door for a more active strategy-one that does not just wait for returns, but actively seeks them.

Trading is emerging as that complementary approach. Rather than replacing investing, trading offers another way to participate in the market.

According to Lillian Chege, a trading analyst at FourFront Management, the perceived divide between the two is overstated.

‘You can make money from both. They are often presented as opposites, but they are simply different tools with the same goal; wealth creation,’ she says.

The difference lies in approach.

Investing relies on long-term growth, while trading requires active engagement-tracking price movements, analysing trends, and acting on short-term opportunities.

‘With trading, you are more involved. You watch the market and respond to what it is doing,’ Ms Chege explains.

These opportunities often arise from short-term price inefficiencies, essentially moments when assets are mispriced and traders can profit from quick movements that long-term investors might overlook.

By contrast, a buy-and-hold strategy depends on the assumption that prices will eventually reflect a company’s true value, a belief that has historically worked, particularly in stable markets. But that approach has limits.

‘When markets are falling, a passive investor can lose money by simply holding on,’ Ms Chege says. ‘In some cases, stocks even get suspended.’

Active traders, however, can respond to changing sentiment, selling when outlooks weaken and re-entering when conditions improve.

‘They can exit, wait, and buy again when prices stabilise,’ she adds.

Still, trading often attracts scepticism, with some critics likening it to gambling. Ms Chege rejects that comparison.

‘Both involve money and risk, but trading is structured. It requires discipline, analysis, and decision-making, unlike gambling, which is largely chance-based,’ she says.

Success in trading, she adds, begins with mindset. It is not guesswork, but a skill that requires learning, strategy, and risk management.

As more investors explore this space, they must also choose strategies that match their goals and capacity. Meanwhile, structural barriers, such as limited access to capital, research, and technology, continue to give institutional investors an edge.

However, that gap is narrowing.

Advances in technology are making tools like algorithmic trading more accessible. These systems use historical data to identify patterns and signal potential buying or selling opportunities.

Ms Chege likens it to a GPS with live traffic updates: the destination remains the same, but the route adjusts in real time.

While some worry that automation could replace human judgement, she believes the future lies in balance.

‘It will not replace people entirely. It will complement decision-making,’ she says.

Cash generated from non-tax revenue streams, such as fees on services, has declined for the first time in four years, signalling the fading of windfall income that had boosted government coffers, such as mop-up of surplus money from State agencies and a surge in fees collected through the e-Citizen platform.

Treasury data shows that non-tax receipts for the nine months to March 2026 fell by 10.65 percent to Sh109.3 billion from Sh122.3 billion in a similar period last year.

The contraction, the first under President William Ruto’s administration, marks a sharp reversal from the previous financial year when collections more than doubled, surging by 135.15 percent in what now appears to have been an exceptional spike driven by one-off inflows.

Non-tax revenue comprises a mix of income streams outside taxation, including licenses under the Traffic Act, land revenue, investment income, surplus funds from semi-autonomous government agencies (SAGAs), fees under interior and citizen services departments, fines and forfeitures, as well as royalties.

Non-tax revenue had been on an upward trajectory since pandemic-era disruptions, which saw collections in the review period plunge more than 30 percent in the 2020/21 and 2021/22 financial years.

A gradual recovery followed, with modest growth in 2022/23 and 2023/24, before the dramatic surge in 2024/25.

However, the sharp increase last year now appears to have set a high base that is proving difficult to maintain, with the latest figures pointing to a normalisation rather than sustained growth.

Despite the decline, collections remain above historical averages, having crossed the Sh100 billion mark in the nine-month review period for a second consecutive year. This is an indication that the government has expanded its non-tax revenue base, even though stability remains elusive.

The recent growth in non-tax revenue had largely been driven by surplus remittances from parastatals, fees tied to citizen-facing services, particularly those delivered under e-Citizen, and investment income from entities where the government holds shares, such as Safaricom.

Since taking office, President Ruto has pushed State-owned entities to surrender idle cash held in their accounts to the exchequer to ease cash flow pressures.

Treasury Cabinet Secretary John Mbadi reinforced the directive last financial year, warning chief executives of State corporations against adjusting operating surpluses by factoring in capital expenditure such as land, machinery, and buildings without prior approval in order to reduce the 90 percent payable to the exchequer.

‘It has been noted with concern that some regulatory authorities are adjusting operating surplus by providing for capital expenditure to determine the 90 percent to be remitted to the National Exchequer,’ Mr Mbadi wrote in a circular to the chiefs of State Corporations last fiscal year.

Under the policy, agencies are required to remit up to 90 percent of their surplus funds to the Exchequer, retaining the balance as stipulated under the Public Finance Management Act.

Institutions such as the Central Bank of Kenya, Capital Markets Authority, Kenya Ports Authority, Competition Authority of Kenya, Communications Authority of Kenya, and the National Transport and Safety Authority generate billions of shillings annually from fees, licences, and fines tied to the provision of government services.

The government has also accelerated the digitisation of public services through the e-Citizen platform, which has become a key driver of non-tax revenue growth.

Tens of thousands of government services have been onboarded onto the platform, enabling citizens and businesses to access services and make payments through a single channel. The shift is aimed at improving efficiency, sealing leakages linked to corruption, and enhancing revenue collection.

But the growing reliance on such measures has drawn scrutiny, with stakeholders last year raising concerns over the rising use of Appropriations-in-Aid (AiA)-revenues collected directly by ministries and agencies-as a major funding source for the government.

Ministerial A-i-A are revenues collected by various Government Ministries, Departments, and Agencies when discharging services and spent at source after appropriation by lawmakers.

Participants warned during Treasury’s public budget hearings last year that increased reliance on fees and levies imposed by public institutions ultimately raises the cost of accessing services for businesses and ordinary citizens, potentially undermining affordability.

The National Treasury has defended the strategy, saying the growth in non-tax revenue reflects deliberate efforts to enhance the financial sustainability of public institutions, improve service delivery efficiency, and reduce reliance on exchequer funding.

‘The Government assures that the increase in fees will not compromise access to or the quality of public services. In most cases, the fees and levies remain modest and non-competitive when compared to market rates, ensuring that public services remain affordable to all Kenyans,’ the Treasury wrote in the 2025 Budget Review and Outlook Paper.