Rogue digital loan lenders will be slapped with KES2 million in fines for violating provisions of the Banking Act, as the Treasury moves to guard borrowers from predatory and collection practices.

The new fines are an upward revision from the current KES500,000 and is part of a broader push by the Treasury to reign on rogue lenders exploiting borrowers with punitive interest rates. 

“We have enhanced the penalty for violations and failure to comply with the provisions of the Banking Act and any other regulations and guidelines, from Sh500,000 to Sh2 million shillings to be dissuasive and instill discipline among non-deposit-taking credit providers,” Treasury Cabinet Secretary John Mbadi told the Senate on Wednesday.

Mbadi made the revelations while responding to concerns raised by Senators over rogue digital lending applications accused of charging very high interest rates, breaching customer privacy and using aggressive debt recovery tactics, including public shaming through unsolicited messages.

The tougher sanctions form part of a broader government intervention targeting the digital credit ecosystem, where rapid growth in mobile lending has expanded financial inclusion but also exposed borrowers to unregulated operators.

Licensing overhaul

According to Mbadi, the Treasury, the Central Bank of Kenya (CBK) and the Office of the Data Protection Commissioner, are rolling out a comprehensive regulatory framework requiring all Non-Deposit Taking Credit Providers (NDTCPs) to obtain licenses under strengthened Digital Credit Providers regulations.

The framework introduces strict eligibility requirements, governance standards and consumer protection obligations designed to eliminate rogue operators and restore order in the micro-credit sector.

“These measures have been introduced to ensure compliance with the law and most importantly to safeguard customers’ interests and prevent rogue lending institutions from infringing consumer rights,” Mbadi told Senators.

Currently, the CBK has licensed 38 commercial banks, 14 microfinance banks and 195 non-deposit-taking credit providers, all operating under the Banking Act, Microfinance Act and CBK Act.

As of December 2025, credit to the private sector stood at KES4.37 trillion from commercial banks, KES32.7 billion from microfinance banks and KES110.5 billion from digital credit providers, representing 96.8 per cent, 0.8 per cent and 2.4 per cent of total credit respectively.

Data protection and debt collection practices

Mbadi noted that while financial penalties will target exploitative lenders, violations involving misuse of personal data fall under the jurisdiction of the Office of the Data Protection Commissioner.

The move follows growing public complaints over lenders accessing borrowers’ phone contacts and issuing debt-shaming messages to relatives and colleagues, practices regulators say undermine consumer rights and dignity.

Senator Moses Kajwang’ pressed Mbadi on measures being taken against lenders whose interest charges exceed twice the principal loan amount. “The credit lenders need to have their pricing module approved to ensure they follow the duplum rule in accordance with Section 44 of the Banking Act,” Mbadi said.

The Treasury and CBK will also intensify oversight of microfinance institutions offering logbook loans, a segment lawmakers say has increasingly targeted distressed borrowers with unsustainable repayment structures.

“There are people who offer credit facilities and take logbooks with the sole objective of selling these assets because they know that their debt structure undermines the servicing of the loans. Now, they must operate within the law, and if they do not operate within the law, they can even have their licences revoked,” Mbadi added.

Balancing regulation and economic growth

Despite calls from Senators to reintroduce interest rate caps, Mbadi warned that direct price controls could weaken investor confidence and limit credit availability.

“If we control interest rates, you discourage investment in your country, and you are making your country uncompetitive, and the credit rating of your country will go down,” he said, reiterating the government’s preference for market-driven lending rates backed by strong regulation.

The CS argued that macroeconomic policy, rather than price controls, remains the government’s primary tool for expanding access to affordable credit.

He cited the Central Bank’s decision in December 2024 to lower the benchmark interest rate from 13.0 per cent to 11.25 per cent, which contributed to a 1.4 per cent increase in credit advanced by commercial banks and non-bank financial institutions to Sh7.14 trillion by year-end.

Lower borrowing costs, he said, supports small and medium-sized enterprises and household consumption, helping stimulate economic activity and incomes.

On concerns over transparency, Mbadi said beneficiary identification systems are being strengthened through improved use of national databases such as the Single Registry to eliminate duplication and ensure support reaches intended recipients.

“We are reinforcing verification, monitoring and audit systems, including periodic beneficiary revalidation and independent oversight, to curb leakages and improve value for money,” he said.

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