How to get started as a lender in Kenya

Believe it or not, there are approximately 7.4 million MSMEs in Kenya struggling to access credit, desperately waiting for you to decide to set up shop as a lender in Kenya.

Getting started as a lender in Kenya means stepping into a market with a $1.1 billion credit gap.

If you’re worried about competition, know that there are currently over 300 fintech companies in Kenya, including banks, microfinance institutions, SACCOs, and digital lenders. Yet, only 36% of MSEs have access to a loan or line of credit, and only 7% of women-owned micro, small, and medium enterprises (MSMEs) have formal access to finance.

This means a large part of the population remains underserved or entirely excluded from financial services.

So there’s no question of whether there’s room for more lenders—it’s how you can strategically position yourself to thrive in this complex environment.

In this article, we’ll break down the current lending landscape in Kenya, the opportunities available, and the steps you need to take to become a successful lender in this high-demand, high-reward sector.

Get the right license to legalize your lending operations

Getting the proper licenses is the first step to becoming a lender in Kenya. The Central Bank of Kenya (CBK) and the Sacco Societies Regulatory Authority (SASRA) are the two main regulatory bodies that issue licenses depending on the type of lending you want to engage in.

By starting with the right license, you ensure that your business operates legally and avoids heavy fines or penalties, which can reach Ksh. 5 million or imprisonment if regulations are violated.

1. For digital lenders:

If you’re planning to provide loans through mobile apps or online platforms, you’ll need a Digital Credit Provider License from the CBK. This involves several steps:

• Register your company with the Registrar of Companies.
• Prepare a business plan, detailing your business model and the target market.
• Submit information about your shareholders, including proof of funding sources.
• Ensure you have anti-money laundering (AML) and data protection policies in place

2. For SACCOs:

If you plan to operate as a SACCO (Savings and Credit Co-operative Society) lender in Kenya, you need to get a license from SASRA. They regulate deposit-taking SACCOs, ensuring that member savings are safe. You’ll need to comply with specific capital and liquidity requirements.

3. For traditional lenders:

For a traditional lender in Kenya who wants to offer credit through more conventional means, several key steps and requirements must be met to comply with Kenyan regulations. Here’s what you need to get started:

• First, you need to register your business with the Registrar of Companies to get a Certificate of Incorporation.
• Get a license from the Central Bank of Kenya (CBK). Submit a business plan, show your capital sources, and ensure you meet the minimum capital required for lending.
• Ensure you have enough capital to run your lending business and absorb potential losses. The CBK sets capital requirements based on your business size.
• Set clear guidelines on how you will lend money, assess borrowers, and manage the risks of non-repayment.
• Be upfront about loan terms, fees, and interest rates to protect consumers and avoid predatory practices​
• Follow anti-money laundering rules by checking your customers’ backgrounds and ensuring funds are legitimate.
• Once licensed, provide regular updates to the CBK about your loan portfolio, financial health, and any risks your business faces​.

You need to understand the market like the back of your hand

Kenya’s credit market in mid-2024 is going through a mix of good and bad times, making it both challenging and interesting for new lenders.

Digital loans have become the main way people borrow money in Kenya, with banks now handling over 90% of both digital and traditional loans. As of 2023, there were about 11.4 million borrowers, which is a big jump from 7.5 million in 2019. This growth shows just how popular loans, especially through digital platforms, have become.

A big concern right now is the rise in non-performing loans (NPLs)

The NPL ratio jumped from 15.7% in March to 16.3% in June, which means more people are defaulting. This increase is particularly noticeable in personal loans, trade, real estate, and construction. If you’re thinking of entering the lending market, closely managing your risk and ensuring you have solid repayment plans is crucial.

Even though more people are borrowing, the overall value of loans being given out is actually shrinking. For instance, the average value of non-digital loans has dropped by 45%, from KShs 8,353 in 2019 to KShs 4,555 in 2023. This suggests that borrowers are becoming more cautious about how much they borrow, likely due to uncertain economic times.

To help stimulate borrowing and support the private sector, the Central Bank of Kenya recently lowered its benchmark interest rate from 12.75% to 12.00% as of October 8, 2024. This move aims to make borrowing cheaper and boost credit availability in a challenging economy. Earlier rate hikes had raised the cost of loans to 12.50%, making it harder for people to afford repayments, so this latest cut is a way to ease that burden.

Despite these challenges, Kenya’s economy showed resilience

With a 5.9% GDP growth in Q3 2023. However, rising inflation and currency depreciation continue to add pressure on the credit market, making it tougher for both lenders and borrowers to navigate the landscape.

At the same time, there’s a strong push to improve financial inclusion, particularly for underserved groups like women and small businesses. Many stakeholders are working together to make affordable credit more accessible, which could have a big impact on these groups, helping them grow and succeed in the long term.

In addition, recent regulatory changes have made a noticeable difference for borrowers. Negative credit listings have dropped significantly—from over 2 million in 2019 to around 933,551 in 2023. This positive shift is largely due to improved credit reporting mechanisms that ensure fairer sharing of borrower information, giving more people a chance to stay financially healthy.

So, what’s the bottom line? Yes, the market has its challenges—rising defaults and shaky performance in key sectors—but there’s also a lot of potential. New lenders can make a mark by focusing on sectors where demand is strong and carefully managing the risk of defaults.

Choose a solid lending infrastructure for your business

To effectively manage loans and scale as a lender in Kenya, you’ll need a reliable loan management software (LMS). These systems help automate everything from loan approvals to repayments, allowing you to focus on growing your business.

Here are some top LMS options available for a lender in Kenya, including a brief look at their features and pricing:

1. Lendsqr

Lendsqr is a highly flexible, cloud-based platform ideal for digital lenders. Its features include automated loan origination, credit scoring, and integrations with credit bureaus. Lendsqr’s Oraculi system helps lenders make data-driven lending decisions and provides built-in fraud detection tools.

Lendsqr integrates with mobile payment platforms like M-Pesa and also supports automated loan repayments.

Pricing: Lendsqr offers customizable pricing based on the size of your business, making it a good option for both small and large lenders.

2. Presta

Presta offers a robust LMS that caters to microfinance institutions, SACCOs, and other lenders. The platform includes loan application tracking, approval workflows, and comprehensive reporting tools. It supports group lending, a feature that makes it popular among microfinance institutions.

Pricing: Presta has a free account option for basic needs, with paid plans starting at Ksh 10,000 per month for additional features, making it affordable for smaller institutions.

3. Jisort

Jisort is a Kenyan-based LMS designed for microfinance, SACCOs, and digital lenders. It integrates well with local payment platforms like M-Pesa, making it easy for Kenyan lenders to handle repayments. Jisort provides essential features such as credit scoring, loan tracking, and customer management. 

Pricing: Jisort starts at $25 per month, making it one of the most affordable options for smaller lenders​.

4. Loandisk

Loandisk is another cloud-based platform aimed at microfinance institutions and small lenders. It includes features like automated loan application processing, borrower management, and detailed financial reports. Loandisk is especially strong in accounting, offering a double-entry system to help track transactions accurately. 

Pricing: Loandisk starts at $59 per month for the basic plan and goes up depending on the number of users and loans managed.

Featured read: Loandisk vs Lendsqr

Key features to look for in a loan management system as a lender in Kenya:

• Automation: These platforms allow you to automate processes like loan approvals, disbursements, and reminders for overdue payments.
• Mobile integration: With mobile money being so prevalent in Kenya, platforms like Jisort and Lendsqr offer seamless integration with services like M-Pesa.
• Credit scoring: Most of these tools integrate with local credit bureaus, giving you the ability to assess borrower risk before issuing loans.
• Customizability: Lendsqr and Presta, in particular, offer customizable solutions based on your business size and needs, allowing you to scale as you grow.

Build a credit assessment process

Kenya’s NPL rate as of mid-2024 is a staggering 16.3%. That means 16 out of every 100 loans are heading into default territory.  This is especially bad in sectors like personal lending, real estate, and construction, so if you’re diving into those waters, better come equipped with a life jacket (aka a solid credit risk assessment).

If you can’t manage risk, you’ll be out of the lending game before you even get started. So here’s how to play it smart.

Check credit reports

As much as you’d like to believe every sob story borrowers have, know that there are fraudsters among them. So, you should run every single borrower’s credit history through at least one credit bureau. This tells you if they’re the type to repay or if they’ll conveniently forget to. Trust the data, not the charming stories borrowers might tell. Lucky for you, Kenya has a few big players that make credit scoring easy, including Transunion, Metropol CRB, and Creditinfo Kenya.

Verify everything

From IDs to income, make sure every detail is checked and double-checked. Smart lenders Lendsqr to automate this, integrating directly to multiple credit bureaus for fast and reliable assessments.

Set your criteria

Decide upfront who qualifies for a loan. What’s the minimum credit score? How much debt can they already have? Set these boundaries, so you don’t get stuck with risky borrowers.

Monitor loan performance

Don’t stop checking in after the loan is approved. Regularly monitor repayments and flag anyone starting to slip up. Lendsqr lets you track these in real-time, so you’re always in the know.

Diversify your risk

Don’t put all your eggs in one basket. Spread your lending across different sectors and borrower types to minimize the risk of NPLs wiping out your profits.

Make sure you have enough capital to stay afloat

Technology is a must have to scale as a lender in Kenya but so is money too. Here’s how to get your hands on the capital you need to fuel your business.

1. Bootstrapping. Your money, your rules.

Let’s start with the obvious: self-funding. If you’ve got savings tucked away (or you’re willing to sell a few personal assets), you can bootstrap your lending business.

The upside? You’re in complete control—no one’s breathing down your neck, asking when they’ll see a return.

The downside? There’s only so much cash you can pull from your own pockets. So, this is great for starting small, but to scale? You’ll need bigger guns.

2. Private investors have the moneybags you need

You might be thinking, “I need someone with deep pockets.” Enter angel investors or private equity firms. These are people or organizations that give you the cash injection you need—sometimes for a slice of equity in your business.

Now they’re not going to hand over their millions for fun; they need to see a solid business plan and a clear path to profitability. Kenya has some vibrant investor networks, and if you’re in fintech, the appetite is even bigger.

For instance, Chandaria Capital and Enza Capital are active players in the East African space, and they love fintechs that promise scalability. You just need to make sure your pitch stands out—give them the confidence that your lending business has what it takes to grow​.

3. Banks are still a classic route

Yes, bank loans still work—no need to reinvent the wheel here. If your business has some assets and a decent track record, banks will lend you the capital you need. But be warned: they’ll scrutinize everything from your business model to your five-year projections.

Plus, you’ll need collateral. Still, with lower interest rates than private investors, banks can be a solid, traditional source of capital. Equity Bank Kenya and KCB Bank Kenya have some pretty flexible business loan options, and they’re no strangers to working with startups. If your paperwork is in order, they might just be your best bet.

4. Let the people back you with crowdfunding.

This one’s for the bold. If you can rally the masses behind your idea, crowdfunding platforms like M-Changa or Crowd Africa could provide the capital you need.

Here, you pitch your idea to the public and hope enough people think your lending business is worth backing.

It’s a bit of a popularity contest, so you’ll need to market the heck out of your campaign, but the beauty of crowdfunding is that you don’t owe equity or interest to anyone—you just deliver the rewards you promised (if any).

5. Venture capital is for the big leagues

For those looking to scale up fast, venture capital (VC) is where it’s at. VCs bring not just money, but expertise and networks. They can help you build a billion-shilling empire—but they’ll want a big say in how the business is run.

If you’re okay with giving up some control for the sake of rapid growth, venture capital could be your golden ticket. In Kenya, firms like TLcom Capital and Helios Investment Partners are known to fund fintech startups, particularly those with a focus on financial inclusion.

6. International grants and funds for free money (sort of)

Lastly, don’t sleep on grants and funds from international organizations. Groups like Mastercard Foundation, Bill & Melinda Gates Foundation, and the International Finance Corporation (IFC) are throwing money at businesses that promote financial inclusion and digital lending.

The best part? This is free money—no payback required. Of course, it comes with strings attached, usually in the form of strict reporting and measurable impact goals, but it’s a solid option if you qualify.

Market your loan products

Even the best product won’t sell itself. You need to get the word out. And marketing your loan products is more than just posting on social media and hoping people will bite—it’s about understanding your customers and delivering your message in a way that makes them trust you with their money (and hopefully, return it).

First things first—who are you lending to? Is it the average Joe looking for a small personal loan, or are you targeting SMEs that need working capital to grow?

Secondly, if you’re not online, you’re invisible. People spend most of their time on their phones, so meet them where they are.

Partner with platforms that already have the trust of your target audience. For example, Lendsqr has an online lenders market populated by vetted lenders in Africa. The platform connects lenders with borrowers, helping them market their products without lifting a finger. Spots are open to both Lendsqr and non Lendsqr lenders.

There are many more ways to market your loan products, all you have to do is look.

Kenya is ready for you to start lending

Starting as a lender in Kenya today offers both opportunities and challenges. The key is understanding that lending is not just about handing out money—it’s about managing risk, building trust, and navigating an evolving regulatory landscape. 

While the market is ripe for growth, especially in sectors like trade and personal loans, success will depend on your ability to stay agile, leverage technology, and focus on customer needs. If you can combine these elements effectively, you’ll be well-positioned to thrive as a lender in Kenya’s dynamic credit market.