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Kenya’s digital lending sector is facing a pivotal policy debate. The Digital Financial Services Association of Kenya (DFSAK) – a lobby representing digital lenders – has urged the Central Bank of Kenya (CBK) to raise the minimum paid-up capital for non-deposit-taking digital credit providers (DCPs) from KES 20 million to KES 50 million. The rationale given by DFSAK is blunt: higher capital requirements would allegedly flush out “idle players” and “speculators” – in other words, firms that may have obtained DCP licenses without serious intent to operate, or purely to flip licenses for profit. This call comes as CBK is drafting updated regulations for the digital credit industry, and it has ignited controversy within Kenya’s fintech community.
To put the proposal in context, KES 20 million (about $135,000) has been the capital floor for DCP licensing since CBK began overseeing digital lenders in 2022. This threshold was part of initial regulations aimed at bringing previously unregulated mobile loan apps into a formal regime focused on consumer protection. By mid-2025, this regime had already licensed 126 digital lenders, after vetting hundreds of applications for business models and fitness of owners. Raising the bar to KES 50 million (around $340,000) would more than double the entry requirement. Proponents argue this would ensure only the most “serious” players remain – those with sufficient skin in the game – thereby deterring fly-by-night operators.
However, critics swiftly point out that capital alone does not equal credibility or good conduct. A well-capitalized lender isn’t automatically ethical or innovative, and a modest-sized lender isn’t automatically a rogue. The DFSAK’s “speculators” narrative, they argue, oversimplifies a more complex market reality. To understand why mandating KES 50M across the board could be counterproductive, we must examine the issue from multiple angles: macro-economic impacts, regulatory principles, and effects on market structure and innovation.
Macro-Economic and Inclusion Concerns: Who Gets Left Out?
At the macro level, Kenya’s digital lending boom has been closely entwined with the country’s financial inclusion story. In 2024 alone, about eight million Kenyans accessed KSh 180 billion in loans via digital credit providers – a staggering volume that underscores how integral these services have become for everyday finance. These are often small, short-term loans transacted over mobile apps, reaching demographics that traditional banks sideline. Youth, informal workers, and micro-entrepreneurs form the core clientele of DCPs. For many, a quick KSh 5,000 mobile loan can mean restocking a kiosk, paying school fees on time, or bridging a medical emergency.
A policy that potentially culls a large swathe of digital lenders could reverberate through the economy. If dozens of smaller DCPs shut their doors because they can’t instantly top-up their capital to KES 50M, what happens to the thousands of Kenyans who relied on each of those providers? While the largest digital lenders might absorb some of the demand, there’s a risk that credit will become less accessible at the last mile. In economic terms, raising entry barriers usually leads to market concentration, which can reduce competition and choice. Fewer providers often translate to higher pricing power for those that remain – in this case, possibly higher interest rates or less favorable terms for borrowers at the bottom of the pyramid. This runs directly against Kenya’s financial inclusion agenda, which for years has sought to democratize access to financial services.
Moreover, the timing of DFSAK’s proposal is questionable from a macroeconomic perspective. Kenya, like many emerging markets, has been navigating a period of high inflation and constrained credit growth. Small businesses in particular are facing a credit crunch from mainstream banks (which have become more risk-averse in a tough economy). Digital lenders have partly filled this gap by offering quick, unsecured loans to SMEs and individuals. Choking off the smaller lenders in this space now – by fiat of a capital rule – could exacerbate the credit gap just when more credit options are needed to stimulate entrepreneurial activity and consumption. If anything, one could argue the focus should be on enabling more responsible lending to spur growth, not less.
Financial inclusion experts also warn that an overly high capital threshold can be exclusionary in another way: it favors institutions with deep-pocketed investors (often foreign) at the expense of domestic, grassroots innovators. KES 50M is no trivial sum in the Kenyan startup context – many locally grown fintechs launch with far less in initial capital. By effectively saying “you must have $0.3 million on hand to even play,” regulators would privilege well-funded (and often foreign-owned) companies while potentially sidelining homegrown entrepreneurs who might better understand the needs of niche communities. Kenya’s fintech success to date has been a mix of both global and local players; tilting the field too far toward the big end could undermine that diversity.
Regulatory Perspective: Proportional Oversight vs. One-Size-Fits-All
From a regulatory standpoint, capital requirements should be proportionate to the risks an institution poses. In traditional banking, stringent capital rules exist to protect depositors and the stability of the financial system – if a bank fails, ordinary people’s savings and the payments system are at risk. Digital credit providers, by definition, do not take customer deposits. They operate by lending out their own capital or borrowed funds, and their loans are typically short-term and unsecured. The rationale for a 20M minimum capital was to ensure a DCP has enough of a financial base to absorb losses on its loan portfolio and to signify commitment. Beyond that, the consumer risks that prompted DCP regulation – predatory lending, misuse of personal data, abusive collection practices – are conduct issues, not capital issues. No amount of balance-sheet capital automatically prevents a lender from harassing borrowers or misusing data. Those problems are solved by rules and enforcement, not by an extra Sh30 million sitting idle in a bank account.
Notably, the Central Bank’s own draft regulations point toward a more nuanced approach rather than a blanket hike. CBK has been considering a tiered oversight framework: under proposed rules, firms with less than KSh 20M capital would operate under a simple registration (lighter oversight), while those above the threshold require a full license. This kind of graduated model is common in financial regulation globally – it allows smaller players to exist with appropriate guardrails, and heavier compliance kicks in as an institution grows. The DFSAK’s push for a uniform KSh 50M bar seems to run counter to this proportional regime. It’s essentially a one-size-fits-all metric that doesn’t distinguish between a startup targeting, say, 1,000 customers in a niche rural market and a behemoth serving a million borrowers in Nairobi.
Policy consistency is also at stake. The CBK chose KSh 20M in the initial DCP regulations after due deliberation. Firms have already structured themselves around that rule – raising funds, hiring staff, building tech – and many just secured licenses in the past year. To suddenly more than double the requirement feels like moving the goalposts, especially in the absence of any major failure or crisis among the new licensees that would justify such a shift. If some licensees truly prove unfit, the CBK has powers to suspend or revoke licenses. Indeed, regulators globally maintain that licensing is not a one-time event but an ongoing qualification – if a “speculative” license-holder never actually launches operations, the authority can handle that on a case-by-case basis. Uprooting the entire ladder because a few didn’t climb it fast enough could be seen as regulatory overkill.
It’s instructive to compare this scenario with the banking sector: Kenya recently raised bank capital requirements from KES 1 billion to KES 10 billion (a tenfold increase) to strengthen banks’ shock absorptive capacity. That move, while also controversial, was predicated on systemic risk concerns – ensuring banks can withstand economic downturns and protect depositors. In practice it is forcing smaller banks to merge or exit, as intended. But digital lenders do not pose systemic risk in the same way – their failure would not threaten payment systems or wipe out public savings. Using a heavy-handed capital rule to “tidy up” the digital credit market therefore appears economically misguided if framed as a stability measure. The CBK’s focus for DCPs has rightly been on market conduct and consumer safety (e.g. requiring transparent loan terms, data privacy, fair debt collection). Those objectives are better met through strict supervision and enforcement of conduct rules rather than simply demanding more capital upfront.
Market Structure and Innovation: The Cost of Crowding Out the Small Fish.
Perhaps the most profound implications of a higher capital threshold lie in how it would reshape the market structure of digital lending in Kenya. The current landscape is a mosaic of large and small players, each serving different segments. Some of the biggest digital lenders (including those backed by international fintech firms) have millions of customers and ample funding lines; at the same time, Kenya is home to smaller, agile startups that focus on specific communities – be it farmers, gig workers, or residents of a particular county – often with tailored products. This diversity has been a strength, fostering competition and a rapid pace of innovation.
If the bar is lifted to KSh 50M capital, one immediate effect would be forced consolidation. Smaller DCPs would have to either raise significant new capital (which many may struggle to do quickly) or bow out by selling their business to larger competitors. The result: fewer, larger entities dominating the field. While consolidation can bring some efficiencies of scale, it also concentrates market power. Fewer competitors typically reduce the pressure to innovate and to offer consumer-friendly pricing. A handful of big lenders might find it easier to maintain high fees or interest rates if the threat of new entrants or scrappy startups undercutting them is diminished. In an industry that has previously been criticized for predatory pricing of loans, less competition could make things worse for consumers, not better.
Innovation itself could be stifled. It’s often the smaller fintech startups that pilot new approaches – whether it’s alternative credit scoring using novel data, or distribution models that reach underserved areas. Large incumbents, content with their market share, have less incentive to experiment (and inherently more bureaucracy that can slow them down when they try). By raising the drawbridge to new or smaller entrants, Kenya risks losing the next wave of creativity in digital credit. One can think of analogies in other sectors: if early regulators had required every ride-hailing service to have the capital of Uber, would local innovations like Little Cab have emerged? If every new mobile money service needed the war chest of M-Pesa, would we have seen niche wallets and payment startups thrive? The fintech credit space is similar – the barrier to entry must not be so high that only giants can participate.
There’s also a social and geographic angle. Large digital lenders naturally focus on big markets to achieve scale – urban populations, formal-sector borrowers, products that can be generalized. Smaller lenders often fill the gaps they leave. For instance, a micro-lender might be willing to serve a remote county in a local language, or structure loans around agricultural cycles, because their business is built around that specialization. Eliminating these niche players could leave certain customer segments high and dry. A vibrant digital credit ecosystem, much like a balanced economy, needs both the big “supermarkets” and the small “kiosks”. As one industry observer quipped during recent discussions, “you can’t claim to champion inclusion on one hand and then close all the small shops on the other.” In short, financial inclusion thrives in an environment where big and small coexist, leveraging their respective strengths.
Rethinking “Speculators”: Capital, Credibility, and the Real Issues.
DFSAK’s proposal hinges on a narrative that some licensed lenders are mere speculators – applicants who secured licenses only to sit idle or sell them off like trading cards. Let’s unpack this. First, how real and widespread is the problem of “license hawking” in the DCP sector? The evidence appears anecdotal at best. Since CBK began licensing DCPs, there have been few if any publicly known cases of outright license resale. In fact, CBK’s rules make license transfers difficult without regulatory approval – any change in shareholding or ownership of a DCP must be vetted by the central bank, and transfers “within a group of the same shareholders” are the only scenario with some leniency. This means one cannot simply get a license on Monday and auction it to the highest bidder on Friday; CBK would step in. What some call “speculation” may actually refer to instances where investors approached licensed DCPs to inject capital or acquire stakes, seeing an opportunity to enter the market. But that is just normal market activity – investors go where the regulatory certainty is. If anything, a license attracting investment is a sign that the regulatory framework is working to instill confidence.
The term “idle players” likely points to those licensees who, months after approval, have issued few or no loans. But before branding them idle dreamers, consider the structural challenges these new DCPs might be navigating. Obtaining the license was Step 1; raising operational funding (the loan book capital or credit lines to lend onward) is Step 2; building the technology and distribution partnerships is Step 3. Some startups clinched the license first to signal credibility to potential investors (since being regulated is a big plus in a sector cleaning up its image). In a tough economy, lining up investors or large debt facilities can take time – especially with CBK’s rightly strict scrutiny on funding sources. So a small DCP that hasn’t launched big loan numbers yet may simply be in that gestation phase, not intending to stay idle forever. Killing their opportunity by raising the capital requirement mid-stream could be a case of throwing the baby out with the bathwater.
Critics of the DFSAK stance also note a certain irony in equating high capital with credibility. The history of Kenya’s digital lending woes – the very reason CBK had to step in with regulations – was driven by some of the largest players engaging in aggressive and unethical tactics. Having tens or hundreds of millions in capital did not prevent a few well-known lenders from charging exorbitant fees or shaming borrowers with privacy-violating debt collection. Credibility in financial services comes from behavior and compliance, not just balance sheets. A small community lender that faithfully serves 5,000 customers with fair terms is arguably more credible, in a social sense, than a large lender that might boast 5 million customers but draws ire for predatory practices. Thus, the conversation about credibility should center on customer trust, transparency, and track record. Those are things regulators can monitor through reporting and consumer feedback loops, irrespective of capital size.
If there truly are actors who got licensed with no intention of operating unless someone bought them out, a targeted remedy could be devised. For instance, CBK could require that a new DCP licensee commence lending activities within a certain timeframe or face license suspension. This would smoke out any purely speculative holders without punishing the genuine startups. In fact, targeted regulatory interventions can address the “idle” issue more surgically than a broad-brush capital hike. The latter assumes money in the bank is the only marker of intent, which oversimplifies how innovation works. Many fintech ventures start with big ideas and modest funds – they attract big funds later by proving their concept. If we raise the entry toll too high at the outset, we may never see those ideas get tested at all.
Balancing Inclusion and Stability: A Way Forward for CBK.
All said, the CBK has a delicate task: fostering a digital credit sector that is both inclusive and responsible. It must weigh DFSAK’s input, which ostensibly aims at market stability and integrity, against the very real risks of snuffing out competition and innovation if requirements go too far. A balanced approach is attainable. In fact, CBK’s draft framework appears to already lean that way – by keeping the KES 20M threshold for full licensing, but allowing smaller providers to register with lighter oversight. Embracing this tiered model could achieve the best of both worlds. Under such a model, a two-track system would exist:
Tier 1 (Full License): DCPs meeting the 20M capital (or some moderate threshold) continue with full license status, subject to all compliance and reporting requirements. These are the larger players with capacity to scale, and they bear the highest supervisory scrutiny.
Tier 2 (Registered Micro Lenders): DCPs below the threshold can operate on a limited basis – perhaps capped loan book size or other limits – under a simpler registration. They would still have to follow core consumer protection rules and anti-fraud/AML measures, but with lower fees and proportionate oversight. This keeps the door open for innovators and smaller providers to serve niche markets without compromising consumer safety.
Such tiering ensures serious players of all sizes can participate, and “idle” companies cannot hide forever – they either grow into full licensees or remain small by design. If the worry is that some Tier 2 firms might abuse the system, CBK could tighten entry due diligence and require proof of ongoing activity (e.g. annual reports of loans made) to maintain registration. This is a more granular solution than a blanket KSh 50M capital law, which is a very blunt instrument by comparison.
Another recommendation is enhancing supervisory vigilance on license usage. CBK could, for example, mandate that any DCP license that goes unused (no lending) for, say, 12 months, will be subject to review or cancellation. Additionally, any transfer of ownership of a DCP should remain subject to approval to ensure the buyer meets all fit-and-proper criteria – this is already in place, and simply needs strict enforcement. These measures directly address concerns about speculators and dormant licenses, without raising the bar so high that new genuine entrants are deterred.
Finally, it’s worth remembering Kenya’s reputation as a global fintech leader has been built on pragmatic regulation. From the early days of M-Pesa, regulators allowed new models to flourish under watchful eyes, intervening when necessary but not throttling innovation. This measured approach turned Kenya into the “Silicon Savannah.” In the case of digital lenders, yes, intervention was needed to end an era of anarchy and consumer harm – and that has largely been achieved through the 2022 regulations and licensing of 126 providers. The next step should be fine-tuning the ecosystem. That means focusing on quality of conduct, adequate disclosures, fair pricing, and data privacy in lending, rather than arbitrarily dictating market structure through capital alone.
In conclusion, the Central Bank of Kenya would be wise to take DFSAK’s proposal with a healthy dose of skepticism. There may indeed be idle or unprepared players in the mix, but a draconian capital hike could throw out the proverbial baby with the bathwater – cutting off promising young fintech firms and reducing choices for consumers. A better path is the middle ground: maintain reasonable capital floors (the current KSh 20M or something similar) and enforce performance and compliance standards rigorously. If higher capital is warranted, it could be introduced gradually or tied to scale (for instance, require more capital as a lender’s loan book grows to certain milestones). This way, capital acts as a growth buffer, not a gate to entry.
Kenya’s financial regulators have the challenging mandate of both ensuring stability and promoting inclusion. Rather than slamming the door on the small players, they should keep the ladder sturdy but accessible. In the long run, an ecosystem that welcomes diverse participants – big and small – under fair rules will yield the most competitive, innovative, and inclusive outcomes. The idle speculator issue can be managed without undermining the vibrant competition that has benefited millions of Kenyans. Raising the drawbridge too high could leave many on the wrong side of the moat, so let’s build a framework that separates true rogues from genuine innovators, without punishing the latter for the sins of the former.
Recommendation: The CBK should hold the line at the current threshold (KES 20M) while implementing a tiered licensing regime and tighter scrutiny on inactive licenses. This balanced approach would address DFSAK’s concerns about credibility in a targeted manner – filtering out any bad-faith actors – without choking off the lifeblood of innovation and inclusion in Kenya’s fintech credit sector. The focus must remain on what truly matters: protecting consumers, fostering healthy competition, and extending financial access, rather than creating an exclusive club of high-capital lenders. In doing so, Kenya will affirm that its fintech future is not about fewer lenders with bigger vaults, but about better lenders with bigger ideas, well-regulated for the good of the public.