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In the age of mobile money and financial technology, Kenyans have access to an unprecedented number of lending options. With a simple tap on your phone, you can secure a loan in minutes.

But beneath this convenience lies a growing menace: predatory lenders. These so-called financial institutions, ranging from rogue mobile money apps to unregulated digital platforms, are luring unsuspecting Kenyans into financial traps that can lead to a cycle of debt and despair.

As the New Year begins, financial resolutions abound. However, the lure of “quick cash” can derail even the best intentions. This feature examines the dangers of predatory loans and offers practical advice to steer clear of their traps.

Over the past decade, Kenya has become a global leader in mobile money innovation. Platforms like M-Pesa have transformed how Kenyans transact, save, and borrow money. However, the rapid adoption of mobile financial services has also opened the door for exploitation.

Mobile loan apps and informal lenders have mushroomed across the country, promising fast loans without collateral or extensive paperwork. While these offers may seem like lifesavers in emergencies, they often come with crippling interest rates, hidden charges, and ruthless debt recovery practices.

According to a 2024 report by the Central Bank of Kenya (CBK), the average interest rate for mobile loans can exceed 400 percent per annum.

Take the case of Mary Njeri (not her real name), a small business owner in Nairobi’s Gikomba market. Last year, she borrowed Sh5,000 from a mobile loan app to restock her business. The app advertised an interest rate of 15 percent per month, which seemed manageable at the time.

Within three months, Mary found herself trapped. Late payment penalties and rollover charges ballooned her debt to Sh12,000. When she couldn’t pay, the lender began calling her relatives and friends, shaming her into repayment. “I lost customers and friends because of those calls,” she recalls.

Mary’s story is far from unique. Across the country, thousands of Kenyans are caught in similar debt traps, with some losing their businesses, assets, or peace of mind. In extreme cases, the stress has led to mental health crises or even suicide.

Predatory lenders employ a range of tactics to exploit borrowers. Here are some red flags to watch out for:

Exorbitant interest rates: Many lenders advertise low rates but apply compounding interest or hidden fees that quickly escalate the debt.

Aggressive debt recovery: Some lenders resort to unethical practices such as harassment, public shaming, or threats of legal action.

Lack of transparency: Predatory lenders often bury key loan terms in fine print or fail to disclose them altogether.

Exploitation of vulnerable groups: Low-income earners, students, and small business owners are particularly targeted by these lenders.

No regulation: Many operate without licenses or oversight, making it hard for borrowers to seek recourse in case of disputes.

If you’re considering a loan, take these steps to protect yourself:

First, understand the terms. Always read the fine print and ensure you understand the interest rates, repayment period, and penalties for late payments. If something seems unclear, ask for clarification.

Second, only borrow from lenders regulated by the CBK. You can find a list of licensed digital lenders on the CBK’s website.

Third, shop around and compare loan terms from different providers. Traditional banks or SACCOs often offer more favorable terms than digital lenders.

Fourth, avoid over-borrowing, even if the lender offers you a larger loan than you requested.

Fifth, instead of relying on loans for emergencies, aim to save a small portion of your income regularly.

And sixth, if you’re unsure about a loan, consult a financial advisor or a trusted friend before making a decision.

— The writer is a
Communication Consultant