Consumption vs production: Digital lenders struggle to transform sector

For an economy struggling not only to create new jobs but also to improve incomes, the solace for many has been digital loans. And, for this reason, the digital lending business has thrived.

Data from the Digital Financial Services Association of Kenya (DFSAK) notes that on average, Kenyans borrow Sh500 million daily. Most of this, however, goes into consumption.

Tala’s MoneyMarch 2026 report confirms this. The report notes that loans are becoming a tool to stabilise incomes.

“(Some) 46 per cent supplement income through loans. This is a three-percentage point increase compared to last year, meaning loans are increasingly used as a tool to stabilise income rather than fund growth,” the report says.

The report says consumers are losing stable income and diversification. It cites declining full-time employment against rising business ownership.

“However, fewer workers are engaging in side hustles, suggesting that as financial pressure rises, fewer consumers have the flexibility to diversify income sources,” the report says. “Rising prices are forcing households to make trade-offs between essential needs and financial goals.”

The 2026 Economic Survey Report by the Kenya National Bureau of Statistics (KNBS) paints the real picture. In the report, real incomes improved in 2025, from Sh665,418 to Sh678,795, for the first time since the pandemic period, showing the field day digital lenders have had.

“Real average earnings depicted a positive increase of two per cent in 2025, in contrast to a decline of 0.3 per cent recorded in 2024,” reads the report.

For this reason, lending to the market for consumption reasons is no doubt a low-hanging fruit for any digital lender.

But as regulation tightens, with the latest draft Financial Consumer Protection Framework for Kenya, which may cap lending based on the ability to repay, there is a need for lenders to rethink their strategies.

In this strategy, Watu Africa may have been a pioneer, as the lender has already carved a niche of lending against assets to facilitate income generation.

In 2024, the lender says it financed over 80,000 income-generating assets.

“Behind each number is a story - a bodaboda rider who can now own rather than rent their motorcycle, a small business owner who gained access to digital opportunities through a smartphone, or a woman entrepreneur breaking barriers in traditionally male-dominated sectors,” says Andris Kaneps, founder, Watu Africa, in the financier’s 2025 Sustainability Report.

The lender, well-known for financing motorbikes and three-wheelers, is said to have financed  1.4 million smartphones in 2024.

“In Kenya, 40 per cent of Watu Simu customers experienced income growth after acquiring a smartphone, with half of them reporting increases exceeding 10 per cent. In Tanzania, 64 per cent saw substantial income increases, and in Uganda, 54 per cent reported higher earnings, with many leveraging smartphones for new employment or entrepreneurial ventures,” the report says.

The lender argues that smartphones are economic enablers that facilitate individuals to start businesses or access new jobs. “In Kenya, 30 per cent of customers accessed new jobs, while 12 per cent started digital businesses. In Tanzania, 16 per cent ventured into new business opportunities, particularly in digital marketing,” the report adds.

Another regional motorcycle and smartphone financier, Mogo Kenya, says it has injected more than Sh44 billion into Kenya’s economy over the past seven years, supporting more than 500,000 Kenyans in accessing productive assets that are creating jobs, supporting entrepreneurship and strengthening livelihoods across the country.

This comes at a time when a new report by Viffa Consult notes that the local boda boda industry generates an estimated Sh660 billion annually, contributing 4.4 per cent of the country’s Gross Domestic Product (GDP) and directly supporting more than 2.5 million livelihoods.

Even as Watu Africa seeks to expand its market further, it notes customer over-indebtedness due to rapid credit availability and insufficient affordability assessments, a thorn in the sector.

This is what the Financial Consumer Protection Framework for Kenya now seeks to correct.

This document, championed by the Communications Authority (CA), Central Bank of Kenya (CBK),  Saccos  Societies Regulatory Authority (Sasra), Capital Markets Authority (CMA), Insurance Regulatory Authority (IRA), Competition Authority of Kenya (CMA), and the Retirement Benefits Authority (RBA), seek to ensure Kenyans do not borrow just for the sake of it.

The ability to repay has to be considered by lenders, a factor that most digital lenders were not taking into account in a bid to grow their market share.

“A Financial Services Provider (FSP) shall not provide a credit product, or an increase in an existing loan or credit limit, to a retail consumer unless they have first undertaken a reasonable assessment to confirm: (a) the retail consumer’s ability to repay the credit without financial hardship; (b) that the credit is likely to be suitable in meeting the retail consumer’s needs and objectives in relation to credit,” reads the proposed regulations in part.

It also adds that FSPs shall act promptly to offer reasonable assistance to retail consumers showing signs of difficulty in making their repayments, to help prevent their situation from deteriorating where this is possible.

“Before taking any enforcement action, FSPs shall consider and propose potential assistance appropriate to the consumer’s circumstances,” it adds.

The proposed regulations list extending the term of the credit contract, changing the type of credit contract,  deferring payment of all or part of the repayment of instalments for a period and reducing the annual percentage rate as some of the remedies they should offer in case of difficulty servicing the loan.

Others are a repayment holiday, partial repayments,  partial forgiveness of the debt and debt consolidation.