A Nairobi Small Claims Court has struck out two debt recovery suits filed because the digital lenders seeking the unpaid loans were not licensed by the Central Bank of Kenya (CBK), setting a precedent in tackling the non-performing loans.
Resident Magistrate Gladys Kiama ruled that Tri-State Capital Limited and Mombo iCapital Limited lacked the legal capacity to enforce their loan agreements in court.
The lenders had separately sought to recover Sh500,000 and Sh162,297, respectively, from two borrowers.
But the magistrate said the companies failed to show they were legally authorised to carry out money-lending business.
The suit has cast a spotlight on a December 2021 law, which empowers the CBK to license and oversee previously unchecked mobile app lenders from April 2022.
Since then, the CBK has licensed 252 digital credit providers after receiving more than 800 applications as the banking regulator seeks to control the lenders following complaints from borrowers who can pay annualised interest rates of more than 100 percent
“The claimant has not demonstrated that it possesses the legal capacity and regulatory authority necessary to engage in the lending activities disclosed in the statement of claim,” the magistrate said in the rulings dated July 17, 2026.
She added that the lenders lacked the requisite standing to seek enforcement of the contested lending arrangements before the court.
The decisions were delivered in separate suits involving Geoffrey Mucuku and Florence Wawira, who had been sued over alleged loan defaults as the mobile app lenders struggle with mounting defaults.
Tri-State Capital told the court it advanced Mr Mucuku a loan of Sh213,500. It said the facility was repayable as Sh229,513 in a single instalment by April 2021.
The company said the loan was secured by a motor vehicle, but the borrower defaulted, leaving an outstanding balance of Sh85,000 that later rose to Sh500,000.
This prompted Tri-State to seek court intervention for an order compelling the borrower to pay the amount.
It also said the vehicle had a registered caveat, making it unavailable for sale to recover the debt.
Mombo iCapital said it lent Ms Wawira Sh65,000 in mid-2025, repayable within one month with interest of Sh13,650. It added that the agreement imposed a weekly late payment charge of 3.5 percent if the borrower defaulted. It told the court the outstanding amount had risen to Sh162,297 as at October 2025.
Instead of examining the borrowers’ liability, the court first considered whether the companies had legal authority to engage in lending business.
The magistrate said the court record showed neither claimant was licensed as a digital credit lender by the CBK.
She said Section 3 of the Banking Act requires every person or entity carrying out banking or financial business in Kenya to obtain the necessary licence from the regulator.
“It then follows that conducting lending business without such licensing amounts to an illegality and economic risk,” she said.
She added that the regulatory framework exists “to protect members of the public from unregulated lending practices and to ensure that entities engaged in the business of advancing credit operate within the confines of the law.”
The court said a party conducting regulated financial activities without the required authorisation could not seek the court’s assistance to enforce rights arising from those business activities.
It stated that allowing an unlicensed lender to continue such business would offend public policy.
According to the magistrate, unlicensed lenders cannot recover debts arising from unlawful lending activities, a finding that extends a growing line of court rulings that treat CBK licensing as a threshold requirement for lenders seeking to recover debts through the courts.
The magistrate found the two companies had not demonstrated they possessed “the legal capacity and regulatory authority necessary to engage in the lending activities disclosed in the statement of claim.”
The magistrate said it became unnecessary to determine whether the borrowers actually owed the money claimed.
“The claimant lacks the locus standi to institute or file a suit or in any way engage the court for redress,” she said, striking out the two claims.
Users of mobile phone-based micro-lenders, which include the Silicon Valley-backed apps, have surged to over two million, from 200,000 in 2016.
Apart from charging high interest rates, consumers say the digital lenders have been infringing on their data privacy by bombarding the contacts they have saved on their mobile phones with calls and messages when they default.
This prompted the 2021 law change to rein in the lenders, which also violated consumer privacy.
The regulations required existing digital lenders to apply for CBK licences within six months and the licensing process is phased because the regulator is reviewing hundreds of applications and seeking additional documentation from applicants.
