Treasury Cabinet Secretary John Mbadi has fired a warning shot at Kenya’s embattled microfinance and digital credit sector, threatening to revoke licences of firms that deliberately structure loans to make repayment impossible — even as four of the industry’s most controversial players walked free from court on a legal technicality.
Appearing before the Senate on Wednesday, Mbadi accused some lenders of issuing logbook-secured loans with the hidden objective of repossessing and selling borrowers’ vehicles rather than recovering debt.
“There are lenders who issue credit facilities and take borrowers’ logbooks with the objective of selling the vehicles. They have structured the loans in such a way that repayment becomes practically impossible. Such entities must operate within the law or we will revoke their licences,” Mbadi told senators during a session broadcast live.
His remarks come barely 48 hours after the High Court dismissed a constitutional petition seeking to eject Mwananchi Credit Limited, Platinum Credit Limited, Izwe Loans Limited and Premier Credit Limited from the market over allegations that they were advancing digital credit without proper licensing from the Central Bank of Kenya (CBK).
Court Escape on Technical Grounds
The petition, filed by Mark Muko, argued that the four lenders had been operating illegally, exposing borrowers to predatory interest rates and abusive recovery practices.
However, the High Court ruled that the petitioner had failed to exhaust dispute resolution mechanisms provided under the Microfinance Act Regulations before approaching the court, rendering the case premature and procedurally defective.
Legal experts note that the ruling was not a declaration of compliance by the lenders but a procedural dismissal. “The court did not give digital lenders a clean bill of health. It simply said the matter was brought to the wrong forum at the wrong time,” one Nairobi-based advocate observed.
Litigation Storm and Inflated Debt Claims
For some of the named firms — particularly Mwananchi Credit — the reprieve comes amid mounting litigation. A landmark 2023 High Court decision drastically reduced a Sh22 million loan demand to the original Sh7 million principal, affirming the application of the in duplum rule, which bars lenders from charging interest exceeding the principal loan amount.
Subsequent rulings have questioned ballooning loan claims and repossession tactics, with judges warning that courts will not allow microfinance firms to operate outside statutory protections designed to shield borrowers from exploitation.
Court records indicate a surge in cases challenging loan terms, with potential combined claims against some lenders running into billions of shillings if even a fraction succeed.
Regulatory Crackdown
Mbadi outlined sweeping regulatory reforms aimed at restoring order to a sector that has expanded rapidly in recent years.
He disclosed that the CBK now requires all Non-Deposit Taking Credit Providers to obtain licences under a strengthened Digital Credit Providers framework, which sets eligibility, governance and consumer protection standards.
As of December 2025, 195 licensed entities were advancing a combined Sh110.5 billion in credit to Kenyan borrowers.
The Treasury has also quadrupled fines for violations of the Banking Act from Sh500,000 to Sh2 million. Mbadi confirmed that credit providers’ pricing models must comply with the in duplum rule under Section 44 of the Act.
Additionally, the CBK is working with the Office of the Data Protection Commissioner to curb abusive debt collection practices, including doxxing and harassment of borrowers’ contacts.
Data from the Competition Authority of Kenya shows consumer complaints against microfinance and digital lenders rose by 28 percent in 2025 — the sharpest annual spike recorded.
A Sector at a Crossroads
The near-simultaneous Senate warning and court dismissal highlight the contradictory moment facing Kenya’s credit market. While the judiciary insists on procedural discipline, the Executive has signalled that regulatory tolerance for predatory lending has ended.
For lenders, the message is clear: comply with licensing rules, maintain transparent pricing structures and respect consumer protection laws — or risk losing the right to operate.
For borrowers emboldened by recent court precedents and Mbadi’s public stance, the legal battles are far from over. The petition may have collapsed on technical grounds, but the broader question of whether parts of Kenya’s digital lending sector have crossed the line from credit provision into financial exploitation remains very much alive.
