Millions of Kenyans, especially small traders, boda riders, and low-income households depend on digital loan apps like Tala, Zenka, and Branch for fast, unsecured credit. But the Finance Bill 2025 proposes a change that could make borrowing from these platforms more expensive. A new tax targeting non-bank digital lenders is set to raise the cost of mobile loans, leaving borrowers with less cash in hand and higher repayment obligations.
New Tax Rules for Digital Loan Apps
Under the Finance Bill 2025, a “digital lender” will be clearly defined in the Excise Duty Act as any entity offering credit via electronic or mobile platforms, excluding banks, SACCOs, and licensed microfinance institutions. This means that only non-bank app-based lenders will be subject to a 20% excise duty on loan interest and service fees. Traditional players such as KCB, Equity Bank, Co-op Bank, and SACCOs remain exempt.
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This tax must be paid when the loan is disbursed, not when it’s repaid, putting digital lenders on the hook even if borrowers default. With default rates among first-time digital borrowers hovering around 35%, the added cost presents a serious business challenge. For users, the outcome is likely to be smaller disbursements and higher charges.
Borrowers to Bear the Burden
A typical KSh 1,000 loan from a digital lender could now be subject to a KSh 40–60 tax deduction, leaving the borrower with only KSh 940 but still owing interest on the full KSh 1,000. Given that many digital borrowers take out multiple loans annually, often up to eight, this change could lead to an extra KSh 4,800 in yearly costs for someone borrowing KSh 10,000 each time.
This impact is not minor. According to Tala’s 2025 MoneyMarch Report, 92% of Kenyan borrowers rely on digital credit providers (DCPs), while only 32% use banks and 21% SACCOs. The hike in borrowing costs will hit hardest among those with the fewest financial options, mama mbogas, MSMEs, and informal workers who already operate on thin margins.
Uneven Ground in the Lending Sector
Digital lenders argue that the Finance Bill creates an uneven playing field. While banks and SACCOs benefit from regulatory exemptions and typically serve lower-risk clients with collateral, digital lenders cater to the unbanked population, those without payslips, collateral, or formal income. These lenders already contend with higher default rates (50.9%, per the 2021 FinAccess Household Survey) compared to 22.1% for banks and 16% for SACCOs.
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The Digital Lenders Association of Kenya has raised concerns, pointing out that digital lenders disburse over KSh 500 million daily, totaling KSh 15 billion monthly, a number expected to rise. But increasing taxes could stunt this growth, pushing Kenyans toward informal lenders and loan sharks, who offer far worse terms.
More Regulation, Less Innovation?
The new tax comes alongside mounting regulatory pressure. Under the 2024 Business Laws (Amendment) Act, all non-deposit-taking microfinance institutions must obtain a license from the Central Bank of Kenya (CBK) by June 27, 2025, bringing them under tighter scrutiny. This follows the introduction of the 2022 Digital Credit Providers (DCP) Regulations, part of CBK’s efforts to stabilize the digital lending space.
Critics fear that overregulation and tax pressure could stall Kenya’s fintech revolution. Once hailed globally for innovations like M-Pesa, Kenya now risks discouraging private investment and innovation. Digital lenders may be forced to raise interest rates, reduce loan availability, or exit the market entirely. According to the Competition Authority of Kenya, the average APR for unregulated digital loans stood at 280.5% in 2021, a figure that could rise further under the Finance Bill.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.