Court Sends a StrongMessage to Digital Lenders as These Interest and Penalty Charges Come Under Scrutiny

How a Sh76,000 Loan Grew to Sh152,000
A Kenyan court has warned digital lenders that a borrower’s acceptance of a loan agreement does not automatically make every interest charge or penalty enforceable. The case arose after Zenka Digital Limited advanced Benson Njeru Sh76,000 through M-Pesa in September 2024. The loan was due after one month, with interest raising the amount payable to Sh103,360. When Njeru defaulted, further charges accumulated and the lender eventually sought Sh152,000 through the Small Claims Court.

At the centre of the dispute was interest charged at 36% a month, equivalent to about 438% annually. The agreement also imposed a default charge of 1.5% per day, or roughly 45% a month. Applied together, the charges allowed the debt to rise quickly beyond the amount originally borrowed.

The court accepted that the loan was genuine and that Zenka had proved the money was disbursed. It nevertheless found the interest and penalties disproportionate and likely to place an excessive financial burden on the borrower. Although parties are generally expected to honour contracts they accept voluntarily, the court said it could reject terms producing a grossly unfair outcome.

What the Ruling Means for Digital Lenders
The decision carries wider consequences because digital credit has become a significant source of borrowing in Kenya. By May 2026, licensed digital lenders had issued 8.37 million loans worth Sh150.56 billion, meaning the way interest and penalties are calculated can affect millions of transactions. The ruling now raises an important question for the industry: how much of the amount written into a mobile loan agreement can a lender actually recover when a borrower defaults?

Zenka proved that it had advanced the money and that Njeru had accepted the loan terms. Even so, the court reduced its claim from Sh152,000 to the Sh76,000 principal, with interest of 18% annually for two months and the normal court rate thereafter. This suggests that a borrower’s acceptance of the terms may not be enough where accumulated charges produce a debt far removed from the original loan.

The judgment could push lenders to examine how monthly interest and daily default penalties work together. Each charge may be clearly disclosed, but combining them can cause the debt to rise rapidly after a missed payment. A pricing model that appears profitable on paper becomes less valuable if a court later refuses to enforce part of the amount claimed.

The decision does not prevent digital lenders from charging for the higher risks involved in unsecured credit, nor does it allow borrowers to escape legitimate debts. Njeru remained responsible for the principal, while his claim that he had made repayments was rejected because he provided no evidence. Its broader message is that lenders must consider not only what borrowers agree to, but whether the final debt remains reasonable and legally enforceable.