At 6:30am every morning, 29-year-old Peter Mwangi starts his motorcycle outside a single-room house in Nairobi’s pipeline estate before joining hundreds of boda boda riders streaming onto the city’s roads.
Three years ago, Mwangi says he was trapped in a cycle familiar to many low-income Kenyans borrowing small mobile loans to buy food, pay rent and survive between jobs.
“I would borrow Sh1,000 today and after a few days you need another loan to pay the first one. At some point almost all my earnings were going into loan repayment,” he reveals to the Star as he gets ready to start his day.
Today, his financial life looks different. Instead of taking short-term digital loans, Mwangi now makes daily repayments on a motorcycle he acquired through an asset-financing programme.
He says the bike generates the income that pays for itself and at the end of the repayment period, he will own it outright.
His experience reflects a growing shift in Kenya’s lending market, where industry players are increasingly questioning whether the country’s booming digital credit sector is helping households build wealth or trapping them deeper in debt.
Industry data shows Kenya’s digital lenders disbursed an estimated Sh180 billion in 2024 to more than eight million active borrowers every month.
But the rapid rise of instant mobile loans has also coincided with mounting defaults, aggressive debt collection practices and widespread blacklisting at credit reference bureaus (CRBs).
According to data from the Digital Financial Services Association of Kenya (DFSAK), some unregulated lenders charge annualised interest rates averaging 280.5 per cent, with certain platforms reaching as high as 520 per cent once penalties and hidden fees are factored in.
The fallout has been severe. More than 14 million accounts have been negatively listed with CRBs, effectively locking around three million Kenyans out of formal credit access.
Consumer complaints against lenders rose 28 percent in 2025 compared to the previous year, while an estimated 800,000 borrowers are juggling multiple loans simultaneously.
Financial analysts say the problem is rooted in how most digital loans are used.
Research by FSD Kenya shows 35 per cent of borrowers use mobile loans for daily survival expenses such as food, transport and airtime.
Another 16 per cent borrow specifically to repay existing debt creating what economists describe as a classic debt spiral.
Billions of shillings are also being written off annually. Industry estimates show between Sh54 billion and Sh72 billion in digital loans were written off as defaults in 2024 alone.
In contrast, a parallel lending ecosystem built around financing productive assets is beginning to expand across Kenya’s informal economy.
Companies financing motorcycles, tuk-tuks and smartphones argue that borrowers are more likely to repay loans tied to assets that directly generate income.
“For asset financing, the customer can put the asset to work from day one, build a formal credit history through repayment, and own it outright at the end of the term,” said Watu Kenya country manager Damien Gueroult.
“The harder question for the industry is whether the credit flowing into Kenyan households is building wealth or extracting it,” he added.
Watu says it financed more than 80,000 mobility assets and 1.4 million smartphones across its African markets in 2024 alone, bringing its cumulative financed assets to more than six million.
Under the model, boda boda riders acquire motorcycles through daily instalments of between Sh200 and Sh400 while using the same bikes to generate income of more than Sh1,300 per day.
While default rates for small consumptive digital loans range between 40 per cent and 83 per cent depending on loan size, Watu says its asset-backed loan portfolio records defaults of about 16 per cent.
Smartphone financing is also emerging as a new frontier for productive credit.
With more than 82 per cent of Kenyan adults using mobile money services, lenders increasingly view smartphones as tools for economic participation rather than luxury consumer products.
Watu says 40 per cent of its smartphone-financing customers in Kenya reported income growth after acquiring internet-enabled devices, while 30 per cent accessed new job opportunities and 12 per cent started digital businesses.
