Kenyan court rules unlicensed loan apps cannot sue borrowers to recover debts

A Nairobi Small Claims Court has ruled that digital lenders (loan apps) without a Central Bank of Kenya licence cannot use the courts to recover unpaid loans, a decision that strips the apps of one of their most powerful enforcement tools.

The ruling came from two separate cases. Tri-State Capital Limited and Mombo iCapital Limited had each gone to court to recover Ksh 500,000 and Ksh 162,297 debts from borrowers, respectively.

Before the court even got to whether the borrowers owed the money, Resident Magistrate Gladys Kiama asked a more fundamental question: were these companies legally allowed to be lending in the first place?

Neither company could prove it held a CBK licence. Both cases were struck out.

Similar read: Kenya licenses 25 more digital lenders as mobile loan market hits $1.16 billion

The judgment does not mean borrowers can simply ignore debts they genuinely owe. The court was clear on that. What it means is that an unlicensed lender cannot walk into a courtroom and expect the judicial system to enforce its contracts. If you want the courts to work for you, you must first be operating within the law.

What this means for Kenyan loan apps

This ruling comes at a significant moment. Kenya has been actively licensing digital lenders since amendments to the Central Bank of Kenya Act brought non-deposit-taking lenders under the regulator’s supervision.

As of last month, 252 digital credit providers had received CBK licences following a process that has been running since March 2022 and has handled more than 800 applications.

The licensing push was driven by real complaints: high interest rates, aggressive debt collectors, and the misuse of borrowers’ personal data by these loan apps. The framework was designed to fix those problems by ensuring only operators meeting minimum standards could legally run loan businesses in Kenya.

For the hundreds of loan apps still operating without licences, this judgment raises the stakes considerably. Getting a licence was already a regulatory requirement. Now it is also the difference between having legal recourse when borrowers default and having none at all.

Also read: Kenya introduces mandatory licence for phone and router importers to curb counterfeits