As efforts to strengthen supervision of digital lending continue, it is imperative to reflect on the next phase of financial inclusion. In the past year, mobile lenders disbursed over Sh133 billion in microloans to more than 7.5 million borrowers.
Yet default rates on advances under Sh1,000 exceeded 80 percent, with one in six people falling into complete default.
While instant credit has undeniably expanded financial inclusion, questions remain about whether current safeguards adequately protect borrowers from over-indebtedness.
Digital lending was designed to support small businesses and bridge irregular income streams.
Instead, a significant portion is being directed towards everyday household expenses and non-essential spending, with emerging data also pointing to some use for betting.
When borrowers take loans to cover daily needs and non-essential spending without sufficient income to repay, they risk defaulting. In reality, the challenge is not the availability of financial products, but a gap between what the market provides and what households require for sustainable financial health.
It’s been argued that the current system has placed greater emphasis on speed of disbursement than on ensuring borrowers are positioned to repay without hardship.
For many borrowers, the difficulty is not the first loan, but what comes after.
When a single income gap stretches across multiple repayment deadlines, borrowers often turn to a second lender to clear the first. Then a third. What begins as a small, manageable advance can quietly become a web of overlapping obligations.
The structure of these products may have also deepened the challenge.
Short repayment windows, sometimes just days or weeks, leave little room for income fluctuations. When deadlines are missed, penalties and rollover fees accumulate rapidly. For loans taken to cover essentials such as food or rent, there is rarely a surplus from which to repay.
The effects ripple outward. Blacklisting at credit reference bureaus, sometimes for modest sums, can restrict access to formal credit for years, closing doors at the moment households most need them open.
With reform taking hold, digital lenders have been brought under formal licensing requirements, creating a clearer framework for responsible conduct. New rules around data protection, disclosure, and debt collection practices are also taking shape.
This is a welcome step toward restoring trust and ensuring that innovation does not outpace safeguards. To further ensure products support borrowers' long-term financial well-being, several paths are getting attention.
Borrowers are getting financial guidance so they can compare products and understand true costs, along with clarity on how their personal data is used, stored, and shared.
So, where do we go from here? Starting early makes it much easier to build financial security. The sooner people begin saving, the more time their money has to grow.
We should also prioritise designing savings products to help individuals build a cushion before they need to borrow, using simple features such as automatic savings, emergency savings accounts, and small, regular contributions that buffer against unexpected expenses.
Financial literacy must go hand in hand with product access. People need practical knowledge on budgeting, saving consistently, managing debt, distinguishing essential from non-essential spending, and planning for future needs so as to get the most value from the financial solutions available to them.
Credit design must accommodate irregular income patterns through longer tenures and grace periods for income shocks.
If household savings do not become automatic, accessible, and culturally normal, debt will continue to devour the capital, investments, and opportunities that generations have laboured to create.
We have proven we can innovate. The question is whether we will now apply that ingenuity to helping ordinary families keep what they earn.
Raphael Lekolool is the Managing Director, Postbank
