In Kenya, the demand for digital credit is strong as a substitute for both informal and formal financial services is strong. Digital credit can harness significant financial inclusion for the demand side and commercial benefits for the supply side. There is room to enhance customer experience and protect well-being. Additionally, current ambiguities in regulation and unequal access to data between disparate providers have an impact on competition. By extension, the hurdles hinder the quality of service, fair prices, and consumer protection standards.

Given the rapid evolution of the digital credit landscape in Kenya, MSC evaluated the progress and challenges in the sector and proposed recommendations towards a more responsible delivery of digital credit. We developed a research report on the changes in the digital credit ecosystem in Kenya, building on our previous work in analytics and behavioral research. This study consolidated key findings from recent secondary research and is supplemented by customer insights, including product user experience through a mock-application review exercise as well as data analytics of supply-side data.

Clients appreciate the convenience and speed of accessing digital credit. However, some core issues remain, including:
• Insufficient oversight due to ambiguous regulation of financial institutions and lack of regulation of fintechs;
• High rates of delinquency in digital credit and the associated negative listing of customers defaulting on low-value digital loans;
• Interest rates are still high, despite the promise of technology to transfer value to customers;
• Lack of channels to understand the needs of clients or create products that are adapted to them or do both, which threatens digital exclusion for specific customer segments;
• Inadequate customer protection practices, particularly concerning prevention of over-indebtedness, transparency, client recourse mechanisms, and privacy of client data;
• Confusion or dissatisfaction, or both in the user experience due to a “low touch” approach.

The study was commissioned by SPTF and the Smart Campaign, a project of the Center for Financial Inclusion at Accion. It was made possible through the generous contributions of Agence Française de Développement (AFD).