Borrowers from non-deposit-taking microfinance institutions (MFBs) in Kenya are now shielded from abusive debt collection practices, thanks to amendments to the Microfinance Act that took effect on January 1, 2025.
The revisions, introduced through the Business Laws (Amendment) Bill, 2024, prohibit lenders from employing harassment, violence, or intimidation when recovering debts. They also outlaw threats and coercion targeting guarantors or individuals associated with borrowers.
Section 53(2) of the updated Act explicitly bars MFBs from using abusive or oppressive tactics, including threats of violence, illegal actions, or profane language, during debt recovery.
Transparency and Privacy Provisions
The amendments emphasize borrower rights by requiring lenders to provide clear and detailed information about loan terms, financial costs, and repayment procedures. Borrowers’ privacy is also safeguarded under Article 31 of the Constitution and the Data Protection Act, prohibiting the unauthorized seizure of possessions.
Strict Regulation of Interest and Penalties
To further curb exploitative practices, the Act mandates that lenders charge only those interest rates, fees, or penalties explicitly agreed upon in loan contracts. Physical credit borrowers now enjoy protections equivalent to those provided to digital credit users, ensuring comprehensive safeguards across the board.
Licensing and Compliance Requirements
Microfinance lenders operating without a deposit-taking framework must apply for a license within six months of the law’s implementation and adhere to the new regulations. The Central Bank will oversee compliance to maintain accountability in the sector.
Enhanced Protections for Borrowers
The amended Microfinance Act reflects Kenya’s commitment to curbing exploitative practices and fostering ethical lending standards. Borrowers and guarantors can now engage with microfinance institutions knowing their rights are protected against abusive recovery methods.
These reforms mark a significant step toward a fairer and more transparent microfinance industry in Kenya.
