A court has refused to enforce a 438 percent annual interest charge imposed on a digital loan, signalling closer judicial scrutiny of punitive mobile loan terms even if borrowers voluntarily accept them before receiving credit.
The Small Claims Court in Nairobi ruled that Zenka Digital Limited could not enforce contractual loan terms requiring 36 percent monthly interest, equivalent to 438 percent annually, and a further 1.5 percent daily default charge, translating to approximately 45 per cent monthly. It said the rates were punitive and unconscionable.
The dispute arose from a Sh76,000 loan that Zenka advanced to borrower Benson Njeru in September 2024 and was repayable within one month. The total payable was Sh103,360. Njeru defaulted, prompting Zenka to sue, demanding a Sh152,000 payment.
The Magistrate’s Court ruled that Zenka could only recover the Sh76,000 it lent the borrower and declined to enforce contractual interest and default charges that had raised its claim to Sh152,000.
“The interest rate charged is unconscionable,” the magistrate said in the judgment dated July 10, 2026. It noted the agreed 36 percent monthly interest translated to about 438 percent annually.
“The rationale underlying the in duplum rule is to guard against the excessive accumulation of interest and charges and to prevent a lender from recovering amounts that are grossly disproportionate to the principal debt,” the court said.
She added that the lender also imposed “a daily default rate of 1.5 per cent, translating to approximately 45 per cent monthly.”
Digital lenders are a major source of quick unsecured credit for thousands of Kenyans who increasingly rely on mobile phones to borrow small and medium-sized amounts, making disputes over loan pricing and recovery an important consumer finance issue.
The court found that the lender had proved it disbursed the money through the respondent’s M-Pesa account after reviewing the loan application and payment records.
However, the court held that the agreed interest terms produced an excessive financial burden that the court could not enforce.
The court said combining the monthly interest with the daily default charge would cause the debt to grow rapidly beyond the original amount borrowed.
“Such rates are capable of producing a debt that bears no reasonable relationship to the amount borrowed and would result in an oppressive burden upon the borrower,” the court said.
The magistrate added that enforcing those provisions “would offend the principles of fairness, equity and good conscience that guide the court in the enforcement of contractual obligations.”
While recognising that contracting parties are generally bound by agreements they freely sign, the court said it retained discretion to refuse terms producing unjust or unconscionable outcomes.
The court instead entered judgment for the principal sum of Sh76,000, awarded interest at 18 percent annually for two months from September 23, 2024, granted court-rate interest from the filing of the suit until payment in full, and awarded Zenka Sh10,000 in costs.
Mr Njeru had argued that the amount claimed was exaggerated because the interest exceeded what the law allowed. He also said he had made repayments that were omitted from the claim.
The court rejected that argument because no evidence was produced to support the alleged repayments.
“I do note that though the respondent claimed it had made some payments, the same was not supported by evidence,” the magistrate said.