The Next Wave: Kenyan banks have forgotten how to lose money

Lending is a business built on the risk that someone will not pay back. A borrower defaults, a harvest fails, or a currency loses value. Yet Kenya’s largest commercial banks seem insulated from the economic conditions their borrowers face. Their profits keep growing even as households and businesses come under pressure.

I spent the last two days going through five years of audited reports from Kenya’s largest lenders, looking for a bad year. I couldn’t find one. Not a single tier-1 bank recorded an annual net loss over the period. Combined pre-tax profits rose 18.6% in 2023 to KES 260.09 billion ($2 billion) in 2024, before growing another 17.6% to KES 305.95 billion ($2.36 billion) in 2025.

NCBA Group, for example, offers a glimpse of how profitable the period has been. Its profit after tax grew 409% from 2020 to KES 23.4 billion ($180.1 million) in 2025. Dividend payouts also rose 368% to KES 11.7 billion ($90.1 million).

But record profits do not necessarily mean banks have stopped lending. There are reasons banks are cautious. A business with irregular sales, incomplete accounts and no property to offer as collateral is harder to assess than a government bond. Recovering a bad loan can also take years, with legal and administrative costs eating into whatever a bank might recover.

A 2026 Kenya Bankers Association working paper, using data from the 2018 World Bank Enterprise Survey, offers an interesting perspective. Roughly three-quarters of small businesses that might need financing never apply for bank loans. They expect rejection, cannot meet collateral requirements, or find borrowing too expensive. Of those who apply, more than 90% are approved.

The problem, then, is that any potential borrowers never make it through the door.

Banks also have to account for rising bad-loan costs. The industry’s non-performing loan ratio reached 16.4% in December 2024, according to the Kenya Bankers Association. As repayment becomes less predictable, lenders have reason to tighten credit assessments.

Government securities offer another option; by late 2024, they accounted for 27.8% of banking sector assets, while the loan-to-deposit ratio had fallen to 70.1%. Lending to the state gives banks an alternative to assessing thousands of businesses with different cash flows, credit histories and repayment risks.

While big lenders backed away from underwriting local firms, they spotted an opening in consumer payments by partnering with mobile telecom networks.

Safaricom runs Fuliza, its overdraft facility, alongside NCBA and KCB (Sidian Bank is joining this lucrative product). At its investor briefing in Nairobi on Thursday, Safaricom said Fuliza brought in KES 4.9 billion ($38 million) in revenue in the six months to September 2026, up 86% year on year. The overdraft accounts for 71% of Safaricom’s KES 7.0 billion ($54.3 million) credit portfolio revenue.

Over those six months, Fuliza disbursed KES 1.16 trillion ($8.97 billion)—up 84%—and collected KES 1.15 trillion ($8.94 billion), achieving a 99.6% recovery rate through automated wallet deductions. Its customer base grew 88.9% to 17.2 million borrowers.

Yet the average advance fell 24.6% to KES 192 ($1.49), down from KES 254.60 ($1.97).

Fuliza works differently from a conventional bank loan because it is tied to M-PESA transactions, involves automated deductions, and handles thousands of small advances through an existing payments network, giving its lending partners a way to assess and recover credit at a scale that would be difficult to replicate through traditional loan applications..

For larger sums, consumers turn to digital credit providers (DCPs). In the six months to June 2026, DCPs lent out KES 43.7 billion ($336.4 million), pushing their total outstanding loan book to KES 153.8 billion ($1.18 billion), a 39.6% jump from December 2025.

Kenya now has 281 licenced digital lenders serving 8.9 million customers, with average loans at KES 17,280 ($133.02) on one-week to two-month terms. According to the Central Bank of Kenya (CBK), 45% of users borrow to stock shops, 37% pay school fees, and 23% purchase food. These facilities charge daily rates around 0.6%, or roughly 24% each month. FinAccess survey reports that 16.6% of Kenyan households face debt distress, up from 10.3% in 2021.

Kenyan banks have not stopped lending to businesses. In 2025, they disbursed KES 326.5 billion ($2.5 billion) to micro, small, and medium enterprises (MSMEs), with more than 73% of outstanding loans issued without collateral. Access remains uneven, though: women-led businesses made up 46% of MSME borrowers but received just 25% of outstanding credit, according to the Kenya Bankers Association.

Banks have good reason to worry about defaults, but businesses without formal accounts, predictable cash flows or property to pledge often struggle to qualify. Lenders must find ways to assess these businesses without exposing themselves to losses they cannot absorb.

Kenn Abuya

Senior Reporter, TechCabal

Thank you for reading this far. Feel free to email kenn[at]bigcabal.com, with your thoughts about this edition of NextWave. Or just click reply to share your thoughts and feedback.

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