Digital lenders operating without a Central Bank of Kenya (CBK) licence cannot enforce unpaid loans through the courts, a Nairobi magistrate has ruled in a decision that could reshape the risks facing unlicenced fintech companies.

In two judgments delivered on July 17, Resident Magistrate Gladys Kiama struck out debt recovery claims brought by Tri-State Capital Limited and Mombo iCapital Limited, finding that the digital lending companies lacked the legal capacity to enforce their loan agreements because they had not shown that they were licenced to conduct lending business.

The rulings suggest that lenders operating without a CBK digital credit provider licence may struggle to enforce loan contracts, increasing the commercial risks of lending before obtaining regulatory approval. Although the decisions concern the two companies, they are likely to be closely watched by fintech lenders whose licence applications remain pending.

“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.

Rather than first deciding whether the borrowers had defaulted, the court considered whether the lenders had the legal authority to advance credit in the first place.

Case dismissed

In one case, Tri-State Capital sought to recover KES 500,000 ($3,858) from Geoffrey Mucuku after saying a loan of KES 213,500 ($1,647), secured against a motor vehicle, had ballooned following default.

In the second, Mombo iCapital sued Florence Wawira for KES 162,297 ($1,252), saying a KES 65,000 ($501) loan issued in 2025 had grown after interest and weekly default charges. The court dismissed both suits.

Citing Section 3 of the Banking Act, the magistrate ruled that entities carrying out regulated financial business must obtain the necessary regulatory approval.

“It then follows that conducting lending business without such licencing amounts to an illegality and economic risk,” she said.

The court added that allowing unlicenced lenders to enforce loan agreements would undermine the public policy objectives behind Kenya’s financial regulatory framework.

“The claimant lacks the locus standi to institute or file a suit or in any way engage the court for redress,” the magistrate ruled in striking out both claims.

The judgments reinforce the CBK’s efforts to bring app-based lenders under formal supervision, following Parliament’s 2021 amendment to the law in response to complaints of excessive interest rates, abusive debt collection, and the misuse of borrowers’ personal data. For Kenya’s fast-growing digital credit market, the rulings underline that regulatory status is not just a compliance issue but a prerequisite for using the courts to recover debts, particularly while many applications remain pending.

Since licencing began in 2022, the CBK has approved 252 digital credit providers from more than 800 applications, leaving hundreds of applicants either awaiting approval or outside the regulated market.