Ideas & Debate

Digital lenders should be allowed to self-regulate

Online digital lenders have now been known to
Online digital lenders have now been known to issue credit just by using the customers’ data to gauge his worthiness. FILE PHOTO | NMG 

Kenya is being driven by the Private Sector consisting of hundreds of thousands of small and micro enterprises both formal and informal employing millions. These businesses rely on access to cash and credit for survival and expansion.

From deep inside the slums in urban areas to the small-scale farmer and trader in deep rural areas of Isiolo, mobile penetration and money has been used as an intermediary to catalyse money access, savings and credit. Smartphone use and internet penetration has aided this fin-tech discovery.

A report by the Institute of Economic Affairs showed that the informal sector contributed an estimate of 35 percent of the GDP and accounted for 80 percent of the employment in Kenya. Over 60percent of those working in this sector are the youth aged between 18-35 years and half of them are women. These groups are the most disadvantaged in terms of credit advancement and access.

Banks usually do not operate in the informal space because its opaque, there often aren’t financial records to determine whether a business is credit worthy or an entrepreneur is capable of paying back a loan. As transactions become digitised, with increased mobile lending and digital transactions, the online digital lenders have come in to fill the gap. Having access to finance means one’s financial independence to growth. The main reason by start ups by individuals or SMEs failure to access credit has often been cited as their ‘risky’ nature of business.

With the interest rate cap regime, not even cheap credit was accessible, but any form of credit was not being issued by mainstream banks. That spelt doom for many enterprises who do not have documented collateral but have to survive nevertheless.


Online digital lenders have now been known to issue credit just by using the customers’ data to gauge his worthiness. The onus has shifted to the client from the lending institution and without any form of collateral he can start borrowing smaller amounts as he moves up the ladder over time. It has been documented that over 25 percent of Kenyans live below the poverty line, meaning that group of people survive on less than 2 dollars a day which is 200 Kenya shillings. The majority earn between Sh10,000 - Sh35,000 monthly which when broken down means income of between Sh300-Sh1000 per day.

What these amounts show is how important credit of between Sh500 -Sh1,500 goes a long was in solving household and business problems. Whether its paying for medical insurance with NHIF, or paying for utility bills like water or power, or business space or stock worth Sh1,000 of vegetables, it has become a game-changer, a life saver and a saved many businesses from shut down.

These digital lenders have made it possible to put responsibility of accessing higher amounts and better credit score on the hands of the beneficiaries. On a micro lending scale gap, they have midwifed growth that eventually will lead to seamless transition of these businesses to a increased turn over making them possible to eventually own assets to qualify for bank loans.