Court Bars Digital Lenders From Recovering Excessive Interest, Unexplained Charges.
Written by Boaz Nyabuto on July 20, 2026
Digital and non-bank lenders have suffered a major blow after the Small Claims Court ruled that they cannot recover excessive interest and unexplained charges from borrowers.
In a recent ruling, the court held that debt recovery must not become an instrument of oppression through the unchecked accumulation of interest and charges.
According to the court, while lenders are entitled to recover money advanced, courts have a duty to prevent unfair enrichment at the expense of borrowers.
“While courts exist to enforce obligations willingly entered into by parties, they equally bear the duty of ensuring that debt recovery does not become an instrument of oppression through the unchecked accumulation of interest and charges,” the ruling read in part.
The dispute arose after a lender sought to recover more than Ksh677,000 from a borrower who had initially taken a Ksh400,000 loan and had already repaid nearly Ksh300,000.
The court found that the lender had failed to explain how it arrived at the amount adequately claimed, noting that it was not taken through the calculations leading to the figure.
It also found that the lender’s effective interest rate of about 86.4 per cent, together with additional charges, was exploitative and oppressive.
The judge declined to speculate on the computations and rejected claims for monitoring and insurance fees after finding they had not been sufficiently justified.
“On the final issue of whether the claimant is entitled to the reliefs sought, this court finds that the interest charged was exorbitant. An effective interest rate of 86.4 per cent, exclusive of additional charges, is nothing short of exploitative,” the court added.
Despite criticising the lender’s interest and charges, the court acknowledged that the borrower still had an outstanding debt.
The court directed the borrower to pay only the remaining balance of Ksh100,631, with interest to accrue thereafter at the court rate instead of the contractual rate sought by the lender.
“Having taken note that Ksh 400,000 was advanced and the respondent has paid Ksh 299,367, the court makes the final disposition as follows: Judgment is hereby entered in favour of the claimant as against the respondent for Ksh 100,631,” the judge ruled.
“That interest on Ksh 100,631 shall accrue at the court’s rate from the date of the last payment of the loan by the respondent until payment in full.”
For many Kenyan borrowers, the ruling acts as a relief as they might have been subjected to heavy interest arising from loans from the lenders.
However, for lenders, the ruling means that lenders cannot just impose unimaginable charges and interest on borrowers, adding to the already existing burden of paying the loan.
