Over the past few years, Kenya’s financial sector has undergone significant evolution, marked by setbacks, innovations, successes, and radical transformations in services, products, policies, regulations, and linkages.
The growth has mostly been fuelled by digital lending institutions, including telcos, fintechs, and other non-bank players, reshaping credit access.
The sector plays a vital role in the economy. According to the Research & Markets Report on Kenya Alternative Lending Business Report, the sector was valued at about $287.4 million in 2023, and is projected to grow to $779.8 million by 2028.
This growth is also driven by rising demand for accessible credit solutions outside traditional banking systems. This is because traditional banks frequently reject borrowers they deem high-risk due to low incomes or a lack of credit history.
Companies like Watu and Mogo have been addressing this gap by offering asset financing. These non-banked lenders provide loans to boda boda operators who rely on these bikes to earn a living. However, we can’t afford to overlook the unique set of challenges that hinder the growth and effectiveness of the sector.
One major issue is borrowers not repaying loans. The boda boda operators often miss payments, and this hits lenders hard. It’s not always intentional, as most of the operators lack financial literacy, in that they don’t plan for costs like fuel, repairs, or family emergencies.
When these expenses come up, loan payments take a backseat.
These challenges put the non-banked lenders in a tough spot. Solutions aren’t obvious, but a few ideas stand out.
First, financial education could help. If operators learned to budget for repairs or taxes, they might default less. Lenders could offer basic training with loans, not exactly courses, but practical tips, which is cheap and could cut losses.
Secondly, the CBK could ease up on smaller lenders by streamlining rules with less paperwork and reports without hurting borrowers. Non-banked lenders need breathing room.
Third, tax relief for operators would make sense, it would be prudent to drop the proposed excise tax to protect operators’ earnings.
Bottom line, fixing this isn’t just about helping lenders, it’s about supporting boda boda operators and the millions who rely on them.
Kenya needs practical steps—education, lighter rules, tax breaks—to make this work.
Daily costs often overwhelm operators, leading to defaults, and lenders see this as dishonesty, but it’s more about poor money management. Either way, high default rates cut into profits and Watu, for example, has reported repossessing bikes when payments stop, but this doesn’t fully recover their losses. The firm faces similar struggles, as unpaid loans strain their operations.
Furthermore, non-banked lenders depend on repayments to fund new loans. When defaults rise, they either scale back or take bigger risks, both of which hurt the business. Operators need bikes to work, but without better financial skills, the cycle of missed payments continues.
High interest rates, a cornerstone of non-banked lending models, has profoundly impacted Non-banked lenders operations, as they charge rates often exceeding 20 percent annually to offset the risk of lending to boda boda operators who lack collateral or credit history, making loan repayments a significant burden for borrowers earning roughly Sh1,000 daily from 15 rides.
Kenya’s regulatory environment, with near-daily changes, adds further strain, as the Central Bank of Kenya’s 2022 Digital Credit Providers Regulations mandate registration, governance, and reporting, imposing compliance costs that non-banked lenders struggle to absorb compared to larger banks.
Furthermore, the parliamentary scrutiny of its Buy Now Pay Later model and proposed laws like the 2023 Public Transport (Motorcycle) Bill, that has now been dropped and was initially aiming to organize boda bodas into SACCOs, signal additional oversight that could restrict lending. Such overly stringent regulations risk stifling innovation, potentially limiting credit access for operators.
Some argue this stifles innovation—lenders can’t experiment with new products when they’re busy meeting the regulators’ demands.
The 2024 Finance Bill proposed a 15 percent excise tax on ride-hailing and delivery services, including motorbike taxis, but public protests halted its passage, though its potential reintroduction in 2025 remains a concern, alongside the existing 16 percent VAT on electronically supplied services and a 1.5 percent Digital Service Tax (DST) on digital platforms.
Non-banked lenders have been critical in supporting micro-enterprises, but taxes undermine this by shrinking disposable income; they must absorb these losses or tighten lending criteria, both limiting their ability to finance new bikes.
Additionally, the lenders contribute billions in taxes, yet face accusations of exploitative practices, adding pressure to navigate compliance while managing borrower financial strain.
This means more borrowers are struggling. When operators make less income, they prioritise food or fuel over loans. Defaults rise, and lenders feel the pinch.
It’s not their fault taxes went up, but they bear the fallout. Operators aren’t earning enough to handle both taxes and high-rate loans, so something gives—usually the loan.
The writer is a communications and public relations specialist
