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2021 

 

Fintech lending in Kenya - an analysis of the 

gaps in consumer protection regulation. 

 
 

Ndwiga, Daisy Karimi 
Strathmore Law School  
Strathmore University 
 
 
 
 
 
 
 
 
 
 

 

Recommended Citation 

Ndwiga, D. K. (2021). Fintech lending in Kenya—an analysis of the gaps in consumer protection regulation 

[Thesis, Strathmore University]. https://su-plus.strathmore.edu/handle/11071/12494 

 
 
 

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Fintech Lending in Kenya: An Analysis of the Gaps in Consumer Protection Regulation  

 

 

Daisy Karimi Ndwiga 

 

 

Submitted in Partial Fulfillment of the Requirements of the Degree of Master of Laws at 

Strathmore University 

 

 

Strathmore Law School 

Strathmore University 

Nairobi, Kenya 

 

2021 

  



ii 
 

Declaration 

I declare that this work has not been previously submitted and approved for the award of a 

degree by this or any other university. To the best of my knowledge and belief, the thesis 

contains no material previously published or written by another person except where due 

reference is made in the thesis itself. 

© No part of this thesis maybe reproduced without the permission of the author and Strathmore 

University. 

Ndwiga, Daisy Karimi 

…………………………    

Approval 

The thesis of Ndwiga, Daisy Karimi was reviewed and approved by the following; 

Prof. Agasha Mugasha,  

Senior lecturer, School of Humanities and Social Sciences, 

Strathmore University. 

Dr. Peter Kwenjera, 

Dean, Law School, 

Strathmore University. 

Dr. Bernard Shibwabo, 

Director of Graduate Studies, 

Strathmore University. 



iii 
 

Abstract 

Traditional banks are sufficiently regulated compared to fintech. This is both an advantage to 

fintech as it allows for financial inclusion but it is also a disadvantage as consumers are exposed 

to risks. However, if fintech lending is overregulated, it will cease to have its current advantages 

such as financial inclusion over banks. The overarching issue, in this case, is how far the law and 

regulation should go in bridging the gap. To this end, this study explores whether consumer 

protection in fintech lending is predicated on incorporating efficient regulations to seal the 

potential and existing gaps. In assessing the viable and feasibility of regulations, this thesis relies 

on the lessons from other jurisdictions such as South Africa and the UK that have enriched 

strategies capable of being adopted in regulating fintech lending in Kenya.     

  



iv 
 

Table of Contents 

Declaration .................................................................................................................................................... ii 

Abstract ........................................................................................................................................................ iii 

List of Abbreviations ................................................................................................................................... vi 

List of Cases ............................................................................................................................................... viii 

List of Statutes ............................................................................................................................................. ix 

Acknowledgement ........................................................................................................................................ x 

Dedication .................................................................................................................................................... xi 

CHAPTER ONE ........................................................................................................................................... 1 

INTRODUCTION ........................................................................................................................................ 1 

1.1 Background of the Study ........................................................................................................................ 1 

1.2. Statement of the Problem ....................................................................................................................... 4 

1.3 Research Hypothesis ............................................................................................................................... 6 

1.4 Justification of the Study ........................................................................................................................ 7 

1.5 Research Objectives ................................................................................................................................ 8 

1.6 Research Questions ................................................................................................................................. 9 

1.7 Theoretical framework ............................................................................................................................ 9 

1.8 Research Methodology ......................................................................................................................... 12 

1.9 Literature Review .................................................................................................................................. 13 

1.10 Limitations of the Study ...................................................................................................................... 28 

1.11 Chapter Breakdown ............................................................................................................................ 28 

CHAPTER TWO ........................................................................................................................................ 30 

REGULATORY FRAMEWORKS APPLICABLE TO FINTECH LENDING IN KENYA .................... 30 

2. Introduction ............................................................................................................................................. 30 

2.1 Tensions Arising from Fintech Regulations ..................................................................................... 31 

2.1.1 Financial Inclusion v Consumer Protection ............................................................................... 31 

2.1.2 Transparency .............................................................................................................................. 32 

2.1.3 Overlapping Jurisdiction ............................................................................................................ 33 

2.1.4 Data Protection ........................................................................................................................... 34 

2.2 Regulatory Frameworks .................................................................................................................... 35 

2.2.1 Constitution of Kenya 2010 ....................................................................................................... 35 

2.2.2 Central Bank of Kenya Act, Cap 491......................................................................................... 36 

2.2.3 Banking Act, Cap 488 ................................................................................................................ 38 



v 
 

2.2.4 Consumer Protection Act, No. 46 of 2012 ................................................................................. 38 

2.2.5 Microfinance Act, No. 19 of 2006 ............................................................................................. 39 

2.2.6 National Payment System Act, No. 39 of 2011 ......................................................................... 40 

2.2.7 Kenya Information and Communications Regulations .............................................................. 41 

2.2.8 Data Protection Act, No. 24 of 2019 .......................................................................................... 42 

2.3 Challenges Facing Regulators ........................................................................................................... 45 

2.4 Conclusion ............................................................................................................................................ 46 

CHAPTER THREE .................................................................................................................................... 49 

ENFORCEMENT OF FINTECH LENDING IN KENYA AND LESSONS FROM OTHER 

JURISDICTIONS ....................................................................................................................................... 49 

3. Introduction ............................................................................................................................................. 49 

3.1 Enforcement of Fintech Lending in Kenya ....................................................................................... 50 

3.1.1 M-Shwari ................................................................................................................................... 50 

3.1.2 Tala ............................................................................................................................................ 52 

3.1.3 Enforcement Mechanisms .......................................................................................................... 53 

3.2 Lessons from other Jurisdictions....................................................................................................... 56 

3.2.1 South Africa ............................................................................................................................... 57 

3.2.2 UK .............................................................................................................................................. 62 

3.3 Conclusion ............................................................................................................................................ 70 

CHAPTER FOUR ....................................................................................................................................... 73 

CONCLUSION, FINDINGS AND RECOMMENDATIONS ................................................................... 73 

4.1 Conclusion ........................................................................................................................................ 73 

4.2 Findings and Recommendations ....................................................................................................... 77 

Bibliography ............................................................................................................................................... 88 

Books ...................................................................................................................................................... 88 

Internet Sources ...................................................................................................................................... 89 

Journal Articles ....................................................................................................................................... 92 

Legal Instruments .................................................................................................................................... 95 

Unpublished Materials ............................................................................................................................ 96 

Appendices .................................................................................................................................................. 98 

Appendix 1 – Ethical Certificate ............................................................................................................. 98 

Appendix 2 -   Originality Report ......................................................................................................... 100 

  



vi 
 

List of Abbreviations 

AI  Artificial Intelligence 

BA  Banks Act 

BoE  Bank of England 

CBA  Commercial Bank of Africa 

CBK  Central Bank of Kenya 

CMA  Capital Markets Authority 

COBS  Conduct of Business Sourcebook 

CRA  Consumer Rights Act 

CRB  Credit Reference Bureau 

GDPR  General Data Protection Regulation 

DISP  Dispute Resolution Sourcebook 

DPME  Department of Planning, Monitoring and Evaluation 

EU  European Union 

FCA  Financial Conduct Authority 

FIC  Financial Intelligence Centre 

FICA  Financial Intelligence Centre Act 

FOS  Financial Ombudsman Service 

FSCA  Financial Sector Conduct Authority 

FSCS  Financial Services Compensation Scheme 

FSRA  Financial Sector Regulation Act 

GFC  Global Financial Crisis 

GFIN  Global Financial Innovation Network 



vii 
 

ICO  Information Commissioner’s Office 

ICT  Information and Communications Technology 

IFWG  Inter-governmental Fintech Working Group 

NCA  National Credit Act 

NCR  National Credit Regulator 

PA  Prudential Authority 

POPIA  Protection of Personal Information Act 

SARB  South African Reserve Bank 

SARS  South African Revenue Services 

SEIAS  Socio-Economic Impact Assessment System 

SMEs  Small and Medium-sized Enterprises 

TCF  Treating Customers Fairly 

UK  United Kingdom 

 

  



viii 
 

List of Cases 

Civil Suit No. 400 of 2016, Consumer Federation of Kenya (COFEK) v Commercial Bank of 

Africa, Central Bank of Kenya and Safaricom Limited 

Wirecard AG Case, 2020  

  



ix 
 

List of Statutes 

Kenya 

Banking Act, Cap 488 Laws of Kenya 

Central Bank of Kenya Act, Cap 491 Laws of Kenya 

Constitution of Kenya 2010 

Consumer Protection Act, No. 46 of 2010 

Data Protection Act, No. 24 of 2019 

Kenya Information and Communications Act, No. 25 of 2010 

Microfinance Act, No. 19 of 2006 

National Payment Systems Act, No. 39 of 2011 

National Payment Systems Act, No. 39 of 2011 

South Africa 

Banks Act, No. 94 of 1990 

Consumer Protection Act, No. 68 of 2005 

Financial Sector Regulation Act, No. 9 of 2017 

National Credit Act, No. 34 of 2005 

Protection of Personal Information Act, No. 4 of 2013 

UK 

Consumer Rights Act 2015 

Data Protection Act 2018 

Small Business Enterprise and Employment Act 2015 

  



x 
 

Acknowledgement 

My deepest appreciation goes to God for his providence of anything I needed.  

I appreciate my school, Strathmore University, for its training, personnel, and facilities.  

My sincere gratitude goes to my supervisor Prof Agasha Mugasha who has made great 

contributions in ensuring I finish my thesis. His constructive criticism, guidance, and vast 

knowledge on the subject have motivated me to put a lot of effort into making sure that this work 

is as original as it can be. Through him, my knowledge and experience in research have 

broadened. I will forever remember you, Prof. 

My utmost regard goes to my parents who laid the foundation for my education and gave their 

all, my siblings and friends Carol and Lilian for their moral support, intellectual contributions, 

and prayers.  

I thank you all.    



xi 
 

Dedication 

I dedicate this thesis to God Almighty, my pillar and source of knowledge. I also dedicate this 

work to my parents, Mr. and Mrs. Ndwiga, and my siblings Murugi, Mugendi, and Wanjiru who 

have encouraged me from the beginning of my LLM Program. Thank you all. My gratitude and 

love cannot be quantified. 

God bless you.  



1 
 

CHAPTER ONE 

INTRODUCTION 

1.1 Background of the Study 

The development of finance and technology has been connected throughout history.1  Financial 

technology (fintech) refers to a broad category of technologies2 such as computer programs and 

other online automated processes to support banking among other financial services.3 The 

operation of fintech is enabled by a few factors such as mobile technology and the internet that 

are easily accessible and widespread, increased generation of data, increased use of cloud 

computing, and the development of algorithms used in decision making.4  

Fintech lending, therefore, refers to technology-enabled credit intermediation, capital raising, and 

deposit-taking whereby formal collateral is not required and unsecured loans are provided5 

compared to traditional banks. Over the past years, there has been significant growth of fintech 

lending in Kenya which provides a large proportion of credit to consumers. This is as a result of 

the widespread use of mobile phones and mobile money. Examples of fintech lending platforms 

in Kenya include M-Shwari and Tala among others.6  

                                                           
1 Perkins DW, ‘Fintech: Overview of innovative financial technology and selected policy issues.’ Congressional 

Research Service, R46332, 2020, 1. 
2 Perkins DW, ‘Fintech’, 1. 
3 Oxford Dictionary of English, 3rd ed. 
4 Perkins DW, ‘Fintech’, 1.  
5 Greenacre J, ‘What regulatory problems arise when fintech lending expands into fledgling credit markets?’ 

61 Washington University Journal of Law & Policy, 2020, 229.  
6 Greenacre J, ‘What regulatory problems arise when fintech lending expands into fledgling credit markets?’ 239, 

242. 



2 
 

The reality for most Kenyans is that the process of accessing credit facilities from traditional 

financial institutions is complicated and sometimes they end up being disqualified from 

accessing the credit.7 The minimum requirements used by traditional financial institutions in 

evaluating the creditworthiness of borrowers exclude millions of borrowers from quickly 

accessing the credit. The institutions are often hesitant owing to lack of credit history, inadequate 

or absence of collateral, lack of or poor banking history and financial statements. These 

borrowers turn to friends for assistance, if possible, or use retained earnings. Fintech firms such 

as Tala and M-Shwari, have come in to help millions of people who were previously left out by 

traditional financial institutions. 

M-Shwari was launched in the year 2012 by Safaricom and the Commercial Bank of Africa 

(CBA).8 The two services that M-Shwari provides include saving where funds are transferred 

from M-Pesa to M-Shwari and the bank deposit services are provided by the CBA. Thereafter, 

credit scores are developed by the CBA through monitoring how customers use M-Pesa. Credit 

scores help in building the credit history of borrowers which is later used in determining their 

credit limit that increases depending on loan repayment. The loan repayment should be done 

within 30 days with an interest rate of 7.5% but if borrowers default, an additional facilitation fee 

of 7.5% is charged.9 After sixty days of default, funds from M-Shwari accounts are deducted to 

settle the loans, and failure to repay after 120 days, the CBA reports borrowers to the Credit 

Reference Bureaus (CRBs). 

                                                           
7 Obiero O and Kiarie W, ‘Is there room for optimism in the Kenyan digital credit sector?’ MicroSave Consulting, 

19 September 2019 - <https://www.microsave.net/2019/09/19/is-there-room-for-optimism-in-the-kenyan-digital-

credit-sector/> on 16 May 2021.  
8 Greenacre J, ‘What regulatory problems arise when fintech lending expands into fledgling credit markets?’ 239. 
9 Greenacre J, ‘What regulatory problems arise when fintech lending expands into fledgling credit markets?’ 241. 

https://www.microsave.net/2019/09/19/is-there-room-for-optimism-in-the-kenyan-digital-credit-sector/
https://www.microsave.net/2019/09/19/is-there-room-for-optimism-in-the-kenyan-digital-credit-sector/


3 
 

Tala was launched in Kenya in 2014 and it provides instant lending facilities to customers.10 

Anyone intending to access the lending facilities starts by downloading the app which has access 

to personal data on the phone such as call logs, text messages, contact lists, social media 

accounts, videos, and photos.11 A form with personal questions is then filled out and a credit 

score developed using information related to the personal data. Regular repayments allow a 

customer to access larger loans. Behavioural and android device data are the two data categories 

used in providing loans.12 On the one hand, behavioural data refers to the movement of the 

borrower through the app which includes the types of pages on the app that are visited. On the 

other hand, android data refers to the phone apps, operating system, and type of device. Machine 

learning algorithms are used in determining the weight that data point for each individual 

receives which in turn determines the extent of the initial loan.13                 

Banking has always been considered as something for the rich who can afford expensive and 

regular fees.14 As a result, banks have not been in a position to provide services to the unbanked 

because significant costs are required to establish branch networks. Kenya has focused on the 

policy goal of financial inclusion to enable communities without banks to access the services 

which include credit facilities.15 The use of mobile phones in making payments have enabled the 

unbanked and more than 18 million users of mobile phones into accessing flexible mobile 

payments.16 On the contrary, the policy goal of financial inclusion clashes with objectives for 

                                                           
10 Tala, ‘Data ethics at Tala: Data ethics and consumer protection.’ Tala, 9 October 2019 - <https://perma.cc/4F8P-

GUCX> on 28 July 2021. 
11 Tala, ‘Data ethics at Tala: Data ethics and consumer protection.’  
12 Greenacre J, ‘What regulatory problems arise when fintech lending expands into fledgling credit markets?’ 242. 
13 Tala, ‘Data ethics at Tala: Data ethics and consumer protection.’  
14 Malala J, ‘Consumer protection for mobile payments in Kenya: An examination of the fragmented legislation and 

the complexities it presents for mobile payments.’ KBA Centre for Research on Financial Markets and Policy, 

Working Paper Series 02/14, 2013, 2. 
15 Malala J, ‘Consumer protection for mobile payments in Kenya’, 3.  
16 Malala J, ‘Consumer protection for mobile payments in Kenya’, 3. 

https://perma.cc/4F8P-GUCX
https://perma.cc/4F8P-GUCX


4 
 

consumer protection because consumers have no choice but to contract on the only terms 

presented by fintech lending firms.  

The Central Bank of Kenya (CBK) has the authority of regulating consumer credit which covers 

fintech lenders.17 However, this is not an exclusive authority as other communication as well as 

insurance regulations also plays a role. As a result, there are overlapping jurisdictions which 

leads to diverse rights and a deviation from consumer protection. Coming up with a unified legal 

body has not been successful and the existing regulatory regimes do not adequately deal with 

issues raised by fintech lending.18  

The risks experienced in fintech lending are similar to those in traditional banking as they both 

perform the same functions. On the contrary, they are neither subject to similar prudent 

regulations nor safety nets to minimise risks on consumers which threaten the stability of the 

whole financial system.19 Therefore, to protect consumers in the fintech lending system, the 

regulatory gaps must be addressed.20 

1.2. Statement of the Problem 

Traditional banks are sufficiently regulated by the Constitution of Kenya 2010, the Central Bank 

of Kenya Act, Cap 491, the Banking Act, Cap 488, the Consumer Protection Act, No. 46 of 

2012, the National Payment Systems Act, No. 39 of 2011, and the Data Protection Act No. 24 of 

2019 among other provisions. They have clearly laid down terms and conditions on issues of 

                                                           
17 Greenacre J, ‘What regulatory problems arise when fintech lending expands into fledgling credit markets?’ 233. 
18Malala J, ‘Consumer protection for mobile payments in Kenya’, 9.  
19 Section 4, Central Bank of Kenya Act (Cap 491) Laws of Kenya  
20 Mugasha A, ‘Securing effective regulation of the shadow banking system.’ 29 (4) European Business Law 

Review, 2018, 511. 



5 
 

billing, interest rates, confidentiality, protection of personal data, and credit reference bureau 

consent among others.  

However, fintech is less regulated because the institutions are not considered as banks in respect 

of how a bank and banking business is defined.21 They do not set out interest rates, repayment 

fees, and additional fees on late repayment, bundled products, or other terms dictating the 

transactions.22 They fail to take into consideration the fact that they are required to disclose all 

mandatory information on lending conditions and key terms.   

The current regulatory position of fintech is both an advantage as it allows for financial inclusion 

and a disadvantage as consumers are exposed to risks such as exploitation, infringement of data 

privacy, and a deviation from consumer protection because of overlapping regulatory 

jurisdictions among others. For example, a good percentage of consumers are heavily indebted 

and struggle to repay the loans majorly because of exploitation and lack of transparency on 

contracting terms.23 A debt culture has developed as the byproduct where consumers live on 

loans and continue to accumulate bad debts. There are challenges posed by fintech lenders such 

as M-Shwari and Tala to youth, and other platforms below 18 years; other people stealing mobile 

lines and using them to borrow, or registering new lines after borrowing and defaulting within 

one of the many platforms. There is a need to strike a balance between enhancing financial 

regulation by encouraging fintech, and their regulation to ensure consumer protection. These are 

risks that require the government to step in to protect consumers. However, if fintech lending is 

                                                           
21 Ryder N, Griffiths M and Singh L, Commercial law: Principles and policy, Cambridge University Press, 

Cambridge, 2012, 497 
22 Karaivanov A and Kessler A, ‘(Dis) advantages of informal loans–Theory and evidence.’ 102 European 

Economic Review, 2018, 102. 
23 Mwangi IW and Sichei MM, ‘Determinants of access to credit by individuals in Kenya: A comparative analysis of 

the Kenya National FinAccess Surveys of 2006 and 2009.’ 3(3) European Journal of Business and Management, 

2011, 207.  



6 
 

overregulated, it will cease to have its current advantages such as financial inclusion over 

traditional banks.   This study will identify the problem by examining the different challenges 

stemming from fintech lending and link them to regulatory gaps. Notably, it will highlight the 

handling of sensitive consumer data by third parties, and this exposes it to incessant 

inappropriate abuse. Further, the absence of exclusive responsibility in fintech regulations can 

contribute to diverse abuse of rights primarily in the form of deviating from consumer protection. 

This study will explore variety of sources that have illuminated these problems and underpin 

how the lack of transparency affects ability of consumers to make decisions that are well 

informed.  The end result is exploitation by different fintech firms where the consumers have 

little choice but to accept the unfair terms outlined in the contract they have to assent before 

accessing the fintech services. To address this problem, this study will evaluate the feasibility 

and applicability of the fintech laws in the UK and South Africa to the Kenyan context. It will 

proffer a series of recommendations that lawmakers can consider in their pursuit of safeguarding 

the rights of the Kenyan consumers.  

1.3 Research Hypothesis 

The existence of regulatory gaps causes potential risks in fintech lending in Kenya. For instance, 

consumer data is handled by third parties which puts it at the risk of being used inappropriately, 

lack of exclusive responsibility in regulating fintech can lead to diverse rights and a deviation 

from consumer protection, lack of transparency affects the consumer’s ability to make informed 

decisions, and exploitation by fintech firms where consumers have no choice but to contract on 

the presented terms.24  

                                                           
24 Treleaven P, ‘Financial regulation of FinTech.’ 3 (3) Journal of Financial Perspectives, 2015. 



7 
 

Therefore, this research hypothesises that  

H1: Consumer protection in fintech lending is dependent on implementing efficient regulations 

to seal the existing and potential gaps.  

However, the overarching issue is how far the law and regulation should go in bridging the gap 

between banks and fintech because if fintech is overregulated, they lose their advantages over 

traditional banks.   

1.4 Justification of the Study 

This research proves that there has been significant growth of fintech lending in Kenya as a 

result of easily accessible mobile technology and the internet in addition to increased data 

generation and cloud computing.25 On the contrary, there are regulatory loopholes such as 

exploitation, lack of transparency, overlapping jurisdictions, and data privacy risks in fintech 

lending. Additionally, the rate of formulating policies and regulations to govern fintech lending 

is slower. This study offers recommendations that relevant authorities can use to seal the said 

gaps.26  

 

The research study has made a significant contribution to managerial practices in banking. It 

points out the need for banks to embrace fintech through the creation of internal teams that can 

come up with new fintech services or products. This can also be achieved through collaboration 

                                                           
25 Perkins DW, ‘Fintech’, 1. 
26 Greenacre J, ‘What regulatory problems arise when fintech lending expands into fledgling credit markets?’ 251. 



8 
 

with other entities in the industry as well as the purchase of fintech services or products.27 As a 

result, it changes the attitude of firms that take traditional approaches by conforming to the flow 

of recent technological developments in the industry. 

The findings of the study generate succinct legal reasoning that contributes significantly to the 

existing knowledge on consumer protection in fintech lending. The study is a source of literature 

on tensions arising in fintech regulation, regulatory frameworks, and the challenges facing 

regulators. Researchers who are keen on analysing recent development in banking, finance, and 

technology28 will benefit from this research study.         

1.5 Research Objectives 

The main objective of the study is: 

1. To analyse the existing gaps in consumer protection regulation of fintech lending systems 

(such as M-Shwari and Tala) in Kenya and suggest remedies or solutions to fill the gaps.      

Specific objectives of the study are: 

1. To evaluate whether fintech lending is generally sufficiently regulated compared to 

traditional banking as far as consumer protection is concerned. 

2. To assess how consumer protection in traditional banks and fintech lending in Kenya is 

regulated. 

3. To discuss the potential risks and benefits of unregulated aspects in consumer protection 

from fintech lending systems vis-à-vis traditional banking in Kenya.  

                                                           
27 Gulamhuseinwala I and Kotecha V, ‘UK fintech on the cutting edge: An evaluation of the international fintech 

sector,’ Ernst & Young LLP, 2016 - 

<https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/502995/UK_Fin

Tech_-_On_the_cutting_edge_-_Full_Report.pdf > on 6 August 2021, 70. 
28 Obiero O and Kiarie W, ‘Is there room for optimism in the Kenyan digital credit sector?’ 



9 
 

4. To determine whether fintech regulation should follow traditional banking regulation. 

1.6 Research Questions 

The research aims to answer the following questions: 

1. Is fintech lending when compared to traditional banking generally sufficiently regulated 

as far as consumer protection is concerned?  

2. How should consumer protection in financial lending and traditional banking be 

regulated? 

3. What are the potential risks of unregulated aspects in consumer protection of the fintech 

lending system vis-à-vis traditional banking in Kenya?  

4. To what extent should fintech regulation follow traditional banking regulation?   

1.7 Theoretical framework 

Regulation is defined by the Black’s Law dictionary29 as the act or process of controlling by 

restriction or rule. Regulation can also be said to be the use of law or instruments of law to 

implement social and economic policy.30 However, in legal and economic literature, there is no 

fixed definition of the term ‘regulation’. The term would be taken to mean the employment of 

legal instruments for the implementation of social-economic policy objectives where the legal 

instruments compel individuals or organisations to comply with the prescribed behavior or else 

suffer penalties/sanctions. Sanctions would include fines, imprisonment, injunctions, 

withdrawals, closing down a business.31 

                                                           
29 Black’s Law Dictionary, 9th ed. 
30 Jaivir S, ed. Regulation, institutions and the law, Social Science Press, New Delhi, 2007, 105. 
31 Etienne J, ’Compliance theory: A goal framing approach.’ 33 (3) Law & Policy, 2011, 324. 



10 
 

This research study relies on the theory of legal positivism which states that laws create legal 

obligations. It is a representation of how the law functions in a society where it is applied. The 

proponent of this legal theory is Herbert Lionel Adolphus Hart who points out that this theory 

consists of primary and secondary rules. The primary rules lay down behaviour standards and are 

obligation rules that create duties. The secondary rules are related to the former rules in different 

ways because they determine how the primary rules are varied, eliminated, introduced, or 

ascertained, and how to conclusively determine their violation. The secondary rules are not only 

remedial and procedural but include the rules that govern sanctions. They extend to judicial 

evidence and procedures as well as the introduction of new legislation. Therefore, according to 

Hart, a complete legal system consists of primary and secondary rules.32  

On the other hand, Lon Fuller on criticizing legal positivism holds the position that eight 

principles of internal morality govern the law. There should be an expression of rules in general 

terms, there should be public promulgation of the rules, the rules must have prospective effect, 

the terms of expressing the rules must be understandable, there should be consistency in the 

rules, the conduct required by the rules should not go beyond powers of the parties affected, the 

rules should not be frequently changed that they cannot be relied on by the subjects, and 

administration of the rules should be consistent with the wording.33  

Lon Fuller goes further to state that a system that does not satisfy the above legality principles 

cannot achieve the essential purpose of the law that aims at attaining social order by using rules 

which guide behaviour. Failure to satisfy requirements for public promulgation of the rules and 

expression of the rules understandably cannot be a guide to behaviour because it will be difficult 

                                                           
32 Freeman MDA, Lloyd’s Introduction to jurisprudence, Sweet & Maxwell, London, 2014, 215.  
33 Freeman MDA, Lloyd’s Introduction to jurisprudence, 108. 



11 
 

to determine what is required by the rules. Fuller concludes by pointing out that the principles 

are internal to law whereby they are built onto the existing conditions of the law. Failure to 

achieve any of the conditions does not result in a bad legal system that is not called a legal 

system at all.34  

Hart responds to Fuller’s claim by pointing out that all actions have internal efficacy standards. 

However, where the standards contradict morality, just like poisoning, they are different from 

morality standards. Therefore, in Hart’s concession to the eight principles by Fuller which are 

built into the legal conditions in existence, he concludes by stating that the same does not amount 

to a connection between morality and the law. Unfortunately, Hart fails to acknowledge the fact 

that the eight principles are moral ideas of fairness. For instance, public promulgation is a 

necessary efficacy condition but a moral ideal as well. It is morally wrong for rules to be 

enforced by a state without public promulgation. Similarly, it is wrong for retroactive rules to be 

enacted by the state, and rules which are inconsistent and impossible.35         

The adoption of legal positivism in this research will be used in achieving the purpose of the 

research because it reinforces the conventional nature of law in the sense that it is socially 

constructed. By proceeding on the presupposition that the existence and content of law is 

depended on social facts and not their merits, this study will advance arguments that the 

existence of law should be towards promoting social harmony and safeguarding consumer 

protection.  With this background, it will be better directed in highlighting the need to improve 

the preexisting laws and enhancing them to levels that assure customers of their protection, away 

from the exploiting fintech lending firm capabilities.    

                                                           
34 Freeman MDA, Lloyd’s Introduction to jurisprudence, 109. 
35 Freeman MDA, Lloyd’s Introduction to jurisprudence, 138. 



12 
 

Innovation in fintech lending has developed faster than regulations in place. Therefore, the 

adoption of innovation requires regulations to be put in place at an equal pace. The aim of 

advancing the government agenda of financial inclusion calls upon regulators to take action in 

regulating fintech lending to protect consumers during financial crises.36 A balance should be 

struck across the board in respect to economic and regulatory development as well as regulatory 

capacity and objectives. Kenyan regulatory authorities should have what it takes to provide 

adequate and appropriate regulation of fintech lending to balance and justify state and regulatory 

intervention.37 Additionally, this study discusses appropriate and adequate approaches by 

focusing on the integrity and stability of the financial system and the response of fintech lenders 

towards regulation. This study on fintech lending regulation in Kenya will focus on consumer 

protection.  

1.8 Research Methodology 

This research study analyses gaps in the regulation of fintech lending in Kenya through 

combining doctrinal and non-doctrinal research studies,38 with qualitative research methods. It 

will be desk review research that is comparative by comparing the similar fintech situation in the 

UK and in South Africa. Furthermore, the study will discuss the popular M-Shwari and Tala 

fintech platforms to contextualize the need to improve Kenya’s legal regulation on fintech 

lending. The doctrinal research study is used for knowledge building or theory testing in the legal 

field. It is a study of authoritative materials, existing laws, and related cases. It establishes the 

applicable law to consumer protection in fintech lending. It undertakes a discussion of legal 

                                                           
36 Malala JN, 'Mobile payments systems in Kenya: A new era or false dawn?: An examination of the legal and 

regulatory issues arising 'post' financial inclusions.' published Ph.D. thesis, University of Warwick, Coventry, 2014, 

202. 
37 Malala JN, ‘Mobile payments systems in Kenya’ 19. 
38 Jain SN, ‘Doctrinal and non-doctrinal legal research.’ 17 (4) Journal of the Indian Law Institute, 1975, 534.  



13 
 

rules, principles, concepts, and doctrines39 on fintech lending in Kenya. The non-doctrinal 

research study is also called socio-legal research. It ensures that the law is analysed from the 

point of view of other disciplines for purpose of generating empirical data to answer the research 

questions. It deals with other aspects such as social, economic, and political issues that affect 

fintech lending. Qualitative research methods involve the collection and analysis of non-

numerical data such as texts to understand concepts.40 This research study will undertake an 

analysis of what has been done by other scholars on consumer protection in fintech lending. 

Nairobi is the study location with head offices for most fintech lending institutions. The target 

populations are individuals and institutions involved in regulating fintech lending in Kenya such 

as the Central Bank of Kenya, Communications Authority of Kenya, Capital Markets Authority, 

and the Competition Authority. The approach used by other jurisdictions in fintech lending has 

enriched strategies to be adopted in regulating fintech lending in Kenya.     

1.9 Literature Review 

The literature review for the regulation of fintech lending is relatively recent and most of it 

triggered by the investigation of the recent Global Financial Crisis (GFC) of 2008 whereby most 

literature has documented that lighter regulation of fintech lending was among one of the sources 

of systemic risk. The scholarly contributions used in the literature review were influenced by 

central themes of fintech regulation, digital financing disruption, fintech credit, fintech risk, and 

consumer protection.  

Joy Malala commences her discussion on how banking in Africa has been revolutionized by 

mobile payment systems by pointing out how the entry of M-Pesa transformed financial services 

                                                           
39 Jain SN, ‘Doctrinal and non-doctrinal legal research.’ 534. 
40 Jain SN, ‘Doctrinal and non-doctrinal legal research.’ 534. 



14 
 

and the banking industry as a whole.41 As a result, the unbanked have been able to access 

financial services. Malala goes further to addresses regulatory issues that have come up as a 

result of M-Pesa coming into place by looking at the regulatory capacity as a whole which 

includes processes used in arriving at government decisions, institutional arrangements, and the 

regulatory tools.42 This is done to understand Kenya's regulatory capacity in addressing 

vulnerabilities that come up as a result of technological innovation and the financial inclusion of 

consumers.  

Malala further holds the position that the regulatory regime related to Kenya’s mobile banking 

consists of significant gaps.43 Certain market areas are yet to be regulated and that regulators 

need to have synchrony in their conduct to ensure that financial institutions conduct business 

within the law and the system’s veracity is guarded. The wellbeing and safety of mobile payment 

and customers relying on it will be guaranteed when the law is developed by the financial 

watchdogs. This will be relevant to consumer protection in fintech lending. However, Malala’s 

contributions were before implementing the data protection law, and this means that her 

contributions are limited in pursuit of this study’s research study. This is a gap that this research 

will fill.  

Stefan Zeranski and Ibrahim E Sancak analyse the case of Wirecard AG from the perspective 

of digital finance. The high speed of technological advancement and the low speed of financial 

supervision have led to an increase in technological gaps. This foggy atmosphere has become an 

                                                           
41 Malala J, Law and regulation of mobile payment systems: Issues arising post-financial inclusion in Kenya, 

Routledge, London, 2017, 53. 
42 Malala J, Law and regulation of mobile payment systems, 63 
43 Malala J, Law and regulation of mobile payment systems, 73 



15 
 

atmosphere for fraudsters to abuse the advantages in Finance TECHs.44 Stefan Zeranski and 

Ibrahim E Sancak state that fraudsters have formulated ways of abusing companies related to 

fintech because of money markets with unattractive yields, fierce competition in national 

economies, trade wars leading to national protectionism, and supervisory approaches that are 

inconsistent.45 Stefan Zeranski and Ibrahim E Sancak conclude by pointing out that financial 

supervisor and governments should prepare for financial scandals and crises in fintech unless 

requirements for digital transformation and structural reforms are met.  

In Stefan Zeranski and Ibrahim E Sancak’s discussion of the Wirecard case, they have also 

looked at the Enron Scandal which was equally notorious. The Enron Scandal forced legislative 

organs and governments of several countries to come up with new organizations, committees, 

and rules as well as financial regulations. The Enron case became a destructive scandal globally. 

Later on, the GFC (2008) undermined the global financial markets.46 The G-20 countries among 

other economies in the world had to develop stricter regulations and multiple reforms to counter 

the crisis. Under normal circumstances, corporate scandals in these countries are not expected. 

However, governments, financial markets, and economies are not perfect as they make mistakes 

and encounter crises. Fintech, a disruptive financial trend was developed after the GFC. 

However, new trends in the financial world come with unique risks of scandals and crises. Stefan 

Zeranski and Ibrahim E Sancak state that little is known about fintech crises and the Wirecard 

AG case sheds light on financial scandals related to fintech.47 The case includes fraud 

allegations, motives, and analysis of what caused the fraud case. This research contends that 

                                                           
44 Zeranski S and Sancak IE, ‘Does the Wirecard AG case address FinTech crises?’ Centre for Scientific 

Interdisciplinary Risk and Sustainability Management, Working Paper No. ZWP/20202, 2020, 7. 
45 Zeranski S and Sancak IE, ‘Does the Wirecard AG case address FinTech crises?’ 25. 
46Zeranski S and Sancak IE, ‘Does the Wirecard AG case address FinTech crises?’ 6.  
47 Zeranski S and Sancak IE, ‘Does the Wirecard AG case address FinTech crises?’ 10. 



16 
 

proper measures should be put in place to protect consumers in fintech lending. The limitation in 

their work is that they focus on developed countries, and their works are not relevant to a 

developing country context. By focusing on fintech in Kenya, this study fills this particular gap. 

John JA Burke discusses the financial services and systems which have a particular focus on 

the current systems and future developments. Burke has undertaken a brief history of the present-

day financial markets, financial markets future, and the applicable law as well as regulatory 

components to the progressive system. Recent advances in finance such as Artificial Intelligence 

(AI), blockchain, and fintech applicable to markets and financial institutions have been 

incorporated. Burke further discusses trends that can reshape financial systems in the 21st 

Century48 which includes emerging countries (BRICS) that are on the rise, economic power shift 

from the US to Asia, and the new financial order in the globe.  

Burke states that institutions with the capability of steering the economy have no choice but to 

adapt to the current developments. Disregard demands by consumers for mobile financial 

services led to the creation of cheap systems of payment and fintech neo-banks. Also, 

development in AI and its use in financial markets, investment, and banking have been equally 

important. If large institutions and governments do not accommodate innovation, BRICS, AI, 

blockchain, and fintech will reform the financial system, introduce innovative payment systems 

and banking, reinvent monetary understanding, and reduce or eliminate the role of 

intermediaries.49 Burke goes ahead to give examples of the Ant Group in Asia and M-Pesa in 

Africa which has transformed the banking architecture. This book offers insight into this research 

because it gives an in-depth understanding of the breadth of the financial systems with 

                                                           
48 Burke JJA, Financial services in the twenty-first century: The present system and future developments fintech and 

financial innovation, Palgrave Macmillan, Cham, 2021, 190. 
49 Burke JJA, Financial services in the twenty-first century, 192 



17 
 

speculations of future developments50 in the industry.   This book falls short of contextualizing a 

situation where traditional banks can merge with other fintech firms, or even create their unique 

fintech capabilities that can be used to tap into the growing markets of fintech services seekers. 

With this regard, this thesis will fill this gap by illuminating these possibilities, the resulting 

challenges, and how to address these problems. 

Iris H-Y Chiu and Gudula Deipenbrock examine the rapid change in financial technology 

which is shaping markets and financial services. The book analyses financial service 

development as well as markets and products that are reshaped by technology with a view to 

supervisory, regulatory, policy, and other legal effects. The role of the law in handling 

revolutionary developments in finance by offering legally enforceable values and principles in 

which the innovation can happen without threatening basic human rights, the general rule of law, 

and the law on financial markets has been illustrated in the book. Experts in international lending 

have made significant contributions to fintech and lending as well as financial inclusion among 

others. AI in the finance sector, financial regulation challenges, financial innovation regulations, 

fintech credit firms, consumer protection in fintech, international development in financial 

regulation, current and future concepts in the regulation of financial markets, and challenges in 

having orderly markets have been discussed in the book.51  

On the one hand, the book defines fintech credit firms as online platforms for lending which is an 

innovative process that has changed the financial service sector. The market for fintech credit is 

innovative and it uses web-based platforms to offer lenders and borrowers cash opportunities as 

well as interest rates beyond the mainstream providers of financial services. Lending platforms 

                                                           
50 Burke JJA, Financial services in the twenty-first century, 199. 
51 Chiu IHY and Deipenbrock G, ed. Routledge handbook of financial technology and law, Routledge, Taylor & 

Francis Group, London, 2021. 



18 
 

have been reviewed and the implications of co-existence with traditional financial service 

providers.52 On the other hand, examines the datafication, disintermediation, and digitisation of 

markets for consumer credit which is also referred to as fintech credit. The impact of this aspect 

in the regulation and functioning of the credit markets with a focus on consumer protection 

challenges has also been discussed.53 This research has been refined by the rich concepts in the 

book on fintech lending and consumer protection. This book provides insightful clarification of 

different terms concerning fintech lending, but it does not contextualize the application of these 

terms in real life contexts. In line with this gap, this thesis applies these terminologies in the 

Kenyan context, which assists in succinct understanding.     

Suzanne Christi and Janos Barberis offer a primary guide to the revolution of financial 

technology, and opportunities, innovation, and disruptions. The book puts together different 

experts in the industry into one informative volume to offer investors, bankers, and entrepreneurs 

the needed answers to capitalise on the market.54 A detailed explanation has been given on the 

major developments in the industry, including critical insights from lessons learned and first-

hand information offered by practitioners. The book offers information on the risks, driving 

forces behind explosive growth, and the key players in fintech.  

The book examines the global regulatory landscape which ranges from the US regimes where 

regulation of banks is at the state and federal levels to the complex but harmonized European 

Union (EU) regulations.55 Companies wishing to give advice and investment management in the 

US must be specific on the applicable state laws. Serving an international clientele requires that 

                                                           
52 Chiu IHY and Deipenbrock G, ed. Routledge handbook of financial technology and law, 128. 
53 Chiu IHY and Deipenbrock G, ed. Routledge handbook of financial technology and law, 142. 
54 Christi S and Berberis J, ed. The fintech book: The financial technology handbook for investors, entrepreneurs, 

and visionaries, John Wiley & Sons, New Jersey, 2016, 13.  
55 Christi S and Berberis J, ed. The fintech book, 23. 



19 
 

issues of cross-border tax and international procedures for anti-money laundering should be 

handled properly. Startups must comprehend the rules of the game. 

The technology on big data has also been analysed in the book. The technology makes it easier to 

implementation of compliance information and risk systems. The major web industry players 

have created technology on big data because traditional technologies could not adapt to increased 

processing capabilities need fast-growing data volumes and unpredictable users. Also, the web 

industry was seeking greater agility and flexibility so applications could rapidly evolve without 

interruption of the system. Compliance systems get data from internal systems such as trading, 

bad reputation, insurance, loans, and customer relationship management. The systems also get 

data from external sources such as government records, historical and real-time news, and 

financial data.56  

The book goes further to state that the technology on big data creates search engines that have 

rules and key indicators to pick out weak signals in huge information sets and transmit alerts to 

help in the early detection of fraud.57 Big data helps in storing time stamps and results as well as 

related information within a single trial. This information is significant to this research as it helps 

in understanding the basis of consumer protection in fintech lending.   The limitation in this book 

is its major focus on the developed countries and it fails to be critical on how the use of big data 

can be used in such countries. To this end, this research gap is addressed in this study.  

                                                           
56 Christi S and Berberis J, ed. The fintech book, 101. 
57 Christi S and Berberis J, ed. The fintech book, 104. 



20 
 

Pranay Gupta and T Mandy Tham start by providing an outline of how fintech has disrupted 

financial services.58 They have discussed the digital economy enablers and provided the current 

state of fintech which includes funding developments and trends, major players and investors, 

how traditional financial institutions are responding to the disruptive technology, and the future 

trends.59 Gupta and Tham go further to discuss key digital economy enablers and underpinning 

technologies including machine learning, AI, open banking, digital payment, crypto assets, 

blockchain implementation, distributed ledger technology and blockchain, data bank and data 

science, and digital identity. This helps build trusted digital identities and data hubs with clear 

authentication and identification for customer consent in addition to security and privacy.  

Gupta and Tham delve into investment management, capital markets, and the segment of asset 

services that have been affected by fintech disruptions and innovations. Further, crowdfunding 

and lending innovations have been examined including insurance and technology (InsurTech), 

regulatory technology (RegTech), and wealth and technology (WealthTech).60 Gupta and Tham 

finish by examining technology effects in the sector of fast and moving consumer goods and 

undertake a discussion on the legal effects of fintech and the need to develop sets of talents and 

skills for the digital economy. Risk management and digital governance are currently the focus 

of several central banks as key digital economy enablers as are policies for data residency that 

govern the responsible, ethical and proper use of data.61 This research study establishes the 

relevance of embracing recent development in fintech.  However, it fails to capture the realities 

that inform the rising uptake of these fintech services particularly in the developing countries 

                                                           
58 Gupta P and Tham TM, Fintech: The new DNA of financial services, Walter de Gruyter GmbH & Co. KG, Berlin, 

2018, 3. 
59 Gupta P and Tham TM, Fintech’, 236. 
60 Gupta P and Tham TM, Fintech’, 373. 
61 Gupta P and Tham TM, Fintech’, 120. 



21 
 

context. This research fills the gap by exploring and recommending the issues of unemployment, 

mental health challenges associated with the fintech services among the youths, and it proffers 

recommendations on how they can be issued.  

Karen G Mills focuses on capital needs for small businesses and how technology has 

transformed the lending market for businesses.62 Small businesses support the US economy in a 

great way through innovation, job creation, promote social mobility, and support the middle 

class. However, small businesses are not included in models for economists and they influence 

policy-making circles in Washington in a very little way. Capital is the backbone of small 

businesses that require credit to start, grow and operate. Historically, they depended on banks for 

capital. However, after the financial crisis in 2008, credit markets froze and banks stopped giving 

out credit to businesses.63 Small businesses were hit hard and recovery of the credit conditions 

has been slower. Securing credit for small businesses became harder which opened the door for 

new lenders and technology.  

Mills discusses that when fintech entrepreneurs first entered the market, it appeared they had the 

opportunity of dramatically changing the lending landscape for small businesses. However, the 

process became more complicated. The new entrants majorly focused on customer experience 

which traditional banks could easily replicate. This takeoff phase that was aborted led to the 

market development phase and it included new players such as Square, American Express, and 

Amazon. AI and big data were used to help small businesses. The market is full of challenges as 

                                                           
62 Mills KG, Fintech, small businesses and the American dream: How technology is transforming lending and 

shaping a new era of small business opportunity, Springer, New York, 2018, 1. 
63 Mills KG, Fintech, small businesses and the American dream, 2. 



22 
 

it is difficult for lenders to determine creditworthiness for the business and most of the time 

borrowers do not know the kind of loan they need.64  

According to Mills, the current regulatory system in the US inhibits innovation and fails to 

protect borrowers in small businesses from bad lenders. Better regulatory structures and lending 

principles in the era of AI and big data are needed with lessons from China and the UK.65 The 

regulatory framework should protect the businesses while encouraging innovation. Bold actions 

will be required to streamline contradictory and overlapping jurisdictional issues. The regulations 

should protect borrowers and create a transparent environment. Despite the revelations, this 

contribution is limited in the sense that it does not reveal the same situation in the context of a 

developing country.  This gap is satisfied in this research, and additionally it will    apply insights 

from the book to fintech lending in Kenya, challenges of consumer protections, and the 

formulation as well as the implementation of proper regulatory frameworks. 

Alessandra Tanda and Christiana-Maria Schena analyse the evolution of business models 

and strategies used by financial institutions that use technology to provide financial services and 

products. Different sources with different strategic approaches used by BigTech, TechFin, and 

fintech companies have been highlighted. Tanda and Schena underline strengths, weaknesses, 

and distinctive patterns. The European market is the main focus for analysis under investigation 

in light of similarities and differences of different markets.66 Re-bundling and unbundling of 

productive finance processes, information treatment, and innovation levels in customer 

relationships show intense changes that banking activities for service providers of financial 

                                                           
64 Mills KG, Fintech, small businesses and the American dream, 5. 
65 Mills KG, Fintech, small businesses and the American dream, 7. 
66 Tanda A and Schena C, Fintech, bigtech and banks: Digitalisation and its impact on banking business models, 

Palgrave Macmillan, London, 2019, 38. 



23 
 

services are dealing with currently, particularly in the retail department. Despite implementation 

strategies by the main international banks, the level of fintech disruption is not understood fully. 

Tanda and Schena highlight features of BigTech, FinTech and mandatory operators after which 

they present current views on the regulatory frameworks in Europe. They clarify differences 

between BigTech, FinTech, and TechFin with the exclusion of Tech companies that provide 

financial intermediaries technological solutions.67 They analyse TechFin and FinTech financial 

activities with an emphasis on the business model peculiarities compared to traditional financial 

institutions such as banks. Differences in FinTech companies have been highlighted as well as 

their competitive strengths in comparison to incumbent companies. Subsequently, there is an 

analysis of the strategies that banks have been using to determine how they have incorporated 

digitisation and technological development into their businesses. The three bank categories that 

have been used to highlight the strategic approaches used include international banks, small 

banks, and native digital banks.  

Tanda and Schena address a section of the regulatory issues while referring to the regulatory 

scope and boundaries of the activities. Initially, the 'wait-and-see' approach towards regulations 

was internationally determined with the perception that the intervention by hasty regulations 

would undermine the positive effects of innovation.68 Currently, regulators are taking 

coordinated action to limit risks and close gaps for regulatory arbitrage. Failure to control and 

regulate activities of financial companies constitutes significant threats in the protection of 

investors and customers as well as resilience terms of the financial market and stability. Finally, 

Tanda and Schena conclude by pointing out considerations for future development in the 

                                                           
67 Tanda A and Schena C, Fintech, bigtech and banks, 2. 
68Tanda A and Schena C, Fintech, bigtech and banks, 3.  



24 
 

financial system and banking.69 This study is limited in terms of comparing the traditional 

banking format and fintech banking services. This gap is filled in undertaking this research, and 

it further applies the commitment of traditional financial institutions in digitising their financial 

services and collaboration with fintech to meet the preferences and demands of customers.        

Anja Kovacs poignantly discusses how policies on cybersecurity in India are an uneven 

patchwork. She points out that technology users lose out in instances where intelligence agencies 

and law enforcement interests are not supportive. Kovacs uses India in her illustrations where 

she states that in 2000, it was one of the first countries to pass electronic commerce and 

cybercrime laws. Further, in 2019, consumer protection laws in the digital age were also 

approved. However, it still lacks laws on the protection of personal data.70 As a result, loosely 

worded provisions allow agencies to access as well as retain personal data. Consumers are 

disadvantaged because the government has prioritised digital space control and surveillance over 

cybersecurity.71 

Kovacs states that in 2017, the Supreme Court of India delivered a landmark judgment which 

was a confirmation that under the Indian Constitution, the people of India enjoy the right to 

privacy. This decision went against the position of the government that privacy was not a 

fundamental right. Two years later, India still did not have provisions on the protection of 

personal data. A draft Personal Data Protection Bill as well as a report called, 'A free and fair 

digital economy: Protecting privacy, empowering Indians’ were released in July 2018. In 2019, 

intelligence agencies indicated their want of stronger protection under the bill. However, the bill 

                                                           
69 Tanda A and Schena C, Fintech, bigtech and banks, 4. 
70 Kovacs A, Cybersecurity and data protection regulation in India: An uneven patchwork. In CyberBRICS, 

Springer, Cham, 2021, 1. 
71 Kovacs A, Cybersecurity and data protection regulation in India, 146 



25 
 

emerged as a tool for regulation of how personal data was used by public and private actors but 

not as a tool aimed at protecting the rights of users.72  

Consumer protection has also been discussed by Kovacs where she states that Indian laws on 

consumer protection need to be updated. Legislation on consumer protection was first introduced 

in parliament in 2015. In August 2019, the Consumer Protection Act 2019 was passed. It 

repealed the Consumer Protection Act 1986. Further in November 2019, the Consumer 

Protection (e-commerce) Rules 2019 were open to public discussion. Contents of the provision 

ranged from the display of information by e-commerce, precautions for the protection of 

consumer rights, to redress procedures for grievances.73 This research will use Kovacs’ pointers 

to help in filling the gaps in the protection of personal data in fintech lending in Kenya.                 

Inna Romanova and Marina Kudinska discuss how the banking business has been changed 

globally by innovations and technologies.74 Fintech has become an important aspect of banking 

as nonfinancial institutions that provide payment services are posing stiff competition to banks. 

The banking business landscape has been changed by fintech which has come up with innovative 

solutions. The fintech boom is seen by other actors in the financial services field as a threat to 

what is considered traditional banking.75 

Romanova and Kudinska have extensively analysed recent trends both in banking and fintech to 

establish development in the market, existing practices in the fintech field, and identify the risks. 

The analysis made by the authors will provide recommendations to be used by regulators to 

                                                           
72 Kovacs A, Cybersecurity and data protection regulation in India, 148. 
73 Kovacs A, Cybersecurity and data protection regulation in India, 151. 
74 Romanova I and KM, ‘Banking and fintech. A challenge or opportunity? Contemporary issues in finance: Current 

challenges from across Europe’ 98 Contemporary Studies in Economic and Financial Analysis, 2016, 28. 
75 Romanova I and KM, ‘Banking and fintech. A challenge or opportunity? Contemporary issues in finance, 28. 



26 
 

ensure fintech risks are reduced. This will in turn address the main objective of the study of gaps 

in the regulation of fintech lending in Kenya.       

Nicholas Ryder, Margaret Griffiths, and Lachmi Singh have provided a detailed overview of 

commercial law areas and policies behind the said areas. They have dealt with traditional 

commercial law areas such as the sale of goods and the law of agency.76 However, other modern 

areas of law such as consumer credit law, finance law, and banking law have also been 

considered. According to the authors, radical legislation was introduced to protect businesses and 

consumers as well as encourage economic growth. Modern areas of commercial law discussed 

by the authors will be applicable in this research study as far as regulation of fintech lending in 

Kenya is concerned, because there is a gap in the research in terms of being contextualized in a 

developing country that has a rapidly spreading uptake of fintech services.   

James Steven Rogers discusses the law on negotiable instruments by pointing out that there has 

been development in modes of payment that have become more complex.77 This type of 

development in most law fields would be seen in the additions or changes to the structure of 

legal rules. Each of the new payment systems has led to the development of a different legal 

body. Efforts to come up with a unified legal body for systems of payment have been 

unsuccessful. Rogers goes further to state that laws on modern systems of payment are a mess.78 

There have been several publications in the application of traditional doctrines to modern 

transactions. He provides an account of how the law can be changed to suit new modes of 

                                                           
76 Ryder N, Griffiths M and Singh L, Commercial law: Principles and policy, Cambridge University Press, 

Cambridge, 2012, 510. 
77 Rogers JS, The end of negotiable instruments: Bringing payment systems law out of the past. Oxford University 

Press, Oxford, 2012, 1. 
78 Rogers JS, The end of negotiable instruments: Bringing payment systems law out of the past. Oxford University 

Press, Oxford, 2012, 7. 



27 
 

payment. Rogers believes and this research also supports the need for changes in the law to suit 

development in fintech. However, there is a gap in the applicability of these changes because 

Rogers approach is quite broad. This gap is addressed in this research by narrowing the focus to 

a case study of Kenya and it underpins what is needed to implement the different changes in the 

fintech lending laws to promote consumer protection.  

Jaivir Singh’s work points out that the need of regulating particular aspects of the market 

economy is acknowledged widely. Legal and institutional mechanisms are used by several 

agencies in India to achieve this. Singh states that regulation might be related to law intimately 

but it surpasses it. He states that there has been organic growth of basic literature on regulation as 

a response to the Western Europe and United States markets.79 Singh tries to understand the 

context within which regulation in India has unfolded under circumstances different from those 

in other jurisdictions. He also emphasizes how the regulatory issues go beyond national 

boundaries and affect the international sphere in this era of globalization.80 Some papers in the 

book delve into the discussion of conceptual issues while others focus on how regulation has 

been affected by the political economy and pressure emanating from international organizations. 

Banking and finance which are relevant to this research have also been discussed.  The limitation 

with this scholarly contribution is that there are myriad generalisations about fintech and its 

impact on an international platform, without a clear cut example of how this is the case. To fill 

this gap, this research will focus on the situation in Kenya, and how the data protection laws 

need to be improved in relation to what other international countries are doing for the sake of 

protecting the Kenyan consumers.  

                                                           
79 Jaivir S, ed. Regulation, institutions and the law, Social Science Press, New Delhi, 2007, 9. 
80 Jaivir S, ed. Regulation, institutions and the law, 14. 



28 
 

1.10 Limitations of the Study 

The Fintech lending industry in Kenya is growing rapidly and the business complexity poses new 

challenges to different companies.81 This also has an impact on its regulation as the legal wheel 

has to keep reinventing itself. Therefore, the findings of the study are not a complete 

representation of fintech lending in Kenya but a snapshot resulting from a qualitative study. 

Additionally, fintech is regarded as a new market trend.82 As a result, little research was 

previously conducted. This became a limitation in building up the literature review.   

1.11 Chapter Breakdown  

Chapter One has introduced this research study. Background of the study, statement of the 

problem, justification of the study, research objectives, research questions, theoretical 

framework, research methodology, literature review, limitations of the study, and research 

hypothesis have been discussed in this chapter. The general objectives of financial regulation 

include consumer protection, data protection, caps on interest rates, and provisions on 

competition. However, this thesis will focus on tackling consumer protection.    

Chapter Two analyses the regulatory framework applicable to fintech lending systems in Kenya 

as well as the existing gaps and how the regulatory framework has been enforced in Kenya. The 

said regulatory framework includes the Constitution of Kenya 2010, Central Bank of Kenya Act, 

Cap 491, Banking Act, Cap 488, Consumer Protection Act, No. 46 of 2012, Microfinance Act, 

No. 19 of 2006, National Payment System Act, No. 39 of 2011, Kenya Information and 

                                                           
81 Romanova I and Marina K, ‘Banking and fintech. A challenge or opportunity? Contemporary issues in finance, 

28. 
82 Goldstein I, Wei J and Karolyi GA, ‘To FinTech and beyond.’ 32 (5) The Review of Financial Studies, 2019, 

1653. 



29 
 

Communication Regulations 2010, and Data Protection Act, No. 24 of 2019. Further, the practical 

problems of transparency and exploitation in consumer protection regulation operationalized by 

the Kenyan government are discussed. The insufficiency of consumer protection regulatory 

frameworks from the fintech lending systems in Kenya within the banking regulation is 

evaluated. The potential risks and benefits of unregulated aspects in consumer protection from 

fintech lending systems in Kenya are critically reviewed. More so, the challenges faced by 

fintech lending regulating institutions in Kenya are assessed. 

Chapter Three entails a detailed discussion of the enforcement of laws and regulations. The 

chapter contains a detailed discussion of two fintech lenders in Kenya are M-Shwari and Tala.  

More so, it discusses the enforcement mechanisms. Further, the two foreign jurisdictions that this 

chapter will focus on are South Africa and the UK, their regulatory frameworks and enforcement 

of the same, and how the countries have succeeded and failed in equal measures.       

Chapter Four addresses the conclusion, key findings, and recommendations. The conclusion is a 

summary of key points, key findings show what the study has revealed and recommendations 

suggest how gaps in fintech lending in Kenya can be filled. The recommendations will also 

undertake a discussion of the different methods and regulatory suggestions to be adopted for 

effective consumer protection regulation of fintech lending systems in Kenya.  

  



30 
 

CHAPTER TWO 

REGULATORY FRAMEWORKS APPLICABLE TO FINTECH LENDING IN KENYA 

2. Introduction 

Regulatory frameworks, tensions arising from the regulations, and challenges facing regulators 

are dealt with in this section. The creation of unified laws and policies on fintech lending has not 

been successful in most developing countries including Kenya. This is because new technologies 

are in place but a lot of regulatory focus is still on traditional banking systems.83 Compared to 

fintech, traditional banks are prudently regulated to minimise failure and extreme costs that 

might result from the failure.84 Additionally, the formulation and enforcement of regulations and 

legal principles are slower compared to the pace at which fintech is developing. Eventually, this 

leads to a steadily widening gap between regulation and new technologies.85 However, having a 

timely legislative intervention to support existing laws and fill the gaps will ensure the law is 

current and relevant. Therefore, it is helpful to acknowledge the fact that the growth of fintech 

has brought about some concerns which cannot be tackled adequately by regimes that are 

currently in place.86  

Consumer protection is one of the key objectives of financial regulation in Kenya. Focus on it is 

relevant because the flow of information from lenders is constrained while levels of education on 

consumer rights are lower. Therefore, strengthening consumer protection in fintech lending will 

go a long way in solving the issue. Regulators in fintech lending have the authority of improving 

                                                           
83 Rogers JS, The end of negotiable instruments: Bringing payment systems law out of the past. Oxford University 

Press, Oxford, 2012, 19. 
84 Mugasha A, ‘Securing effective regulation of the shadow banking system.’ 29 (4) European Business Law 

Review, 2018, 4. 
85 Malala J, ‘Consumer protection for mobile payments in Kenya’ 9. 
86 Malala J, ‘Consumer protection for mobile payments in Kenya’ 19.  



31 
 

consumer protection through the amendment of legislation and putting more in place.87 The CBK 

has been watchful and provided oversight but the same has not been extensive and exhaustive. 

This thesis focuses on a critical analysis of the underlying issues in fintech lending and consumer 

protection, regulatory frameworks in place on the same, regulatory institutions, and challenges 

facing the said institutions.                  

2.1 Tensions Arising from Fintech Regulations 

2.1.1 Financial Inclusion v Consumer Protection 

The goals of financial inclusion involve a widespread promotion of fintech lending throughout 

the country. However, financial inclusion goals seem to clash with traditional regulatory 

objectives such as consumer protection. There are two reasons why consumers need to be 

protected. First, there are few options available to consumers but to contract on terms presented 

by powerful fintech lending companies. Second, the companies have the capability of exploiting 

information in their favour.88  

On the contrary, the theory of exploitation has failed to prevail among economists who do not 

regard it as a justification for protecting consumers. This is because the theory fails to consider 

the competition that gives companies bargaining power. Also, it is because consumers do not 

know much about contracts and products compared to professionals. Sometimes it is argued that 

only a restricted role should be played in consumer protection because it is efficiently achieved 

through the operation of open and free markets. According to economists, the law is only 

required to intervene in markets where foul play thrives although the issue can be undertaken 

                                                           
87 Srivastava SC, Chandra S and Theng YL, ‘Evaluating the role of trust in consumer adoption of mobile payment 

systems: An empirical analysis.’ 27 Communications of the Association for Information Systems, 2010, 561. 
88 Ruhl G, ‘Consumer protection in choice of law.’ 44 Cornell International Law Journal, 2011, 569. 



32 
 

cost-effectively. While accepting financial inclusion and consumer protection, it is important to 

acknowledge that certain approaches can be viewed from either perspective.89  

2.1.2 Transparency 

Information in fintech can be presented differently particularly where different fees are charged 

by multiple entities involved.90 This makes it challenging for consumers to determine the final 

costs. Simplified disclosure of the terms and conditions of fintech lending can help consumers in 

making informed decisions that would help in avoiding issues such as loan defaults. Putting in 

place regulations that assure the protection of consumers when anything goes wrong allows them 

to have a preference based on convenience, service, and price regardless of whether the provider 

is a new entrant or existing.91 Transparency is a pillar of modern regulation which aims at 

promoting market discipline, allow for timely intervention by regulators, and ensure there is 

competition.92 On the contrary, transparency could have little or no impact on financial choices 

and behavioral practices.93 It is believed that some individuals with little to no education94 have a 

high likelihood of making financial mistakes regardless of disclosure quality.95 To this end, 

additional information should be availed to consumers; the information should be broken down 

and translated to different local dialects that are easy to understand for such individuals. The 

information should be made readily available through brochures, incorporated in different radio 

                                                           
89 Malala J, ‘Consumer protection for mobile payments in Kenya’ 31. 
90 Organisation for Economic Co-operation and Development, Report on consumer protection in online and mobile 

payments, OECD Publishing, 2012. 
91 Organisation for Economic Co-operation and Development. Report on consumer protection in online and mobile 

payments. 
92 Mugasha A, ‘Securing effective regulation of the shadow banking system.’ 24. 
93 Ben SO and Schneider CE, ‘The failure of mandated disclosure’, 159 University of Pennsylvania Law Review, 

2011, 647.  
94 Lusardi A and Tufano P, ‘Debt literacy, financial experiences, and overindebtedness.’ National Bureau of 

Economic Research, Working Paper No. 14808, 2009 
95 Clark N, ‘Education in Kenya.’ World Education News & Reviews, 2 June 2015 -  

<https://wenr.wes.org/2015/06/education-kenya> on 5 June 2021  

https://wenr.wes.org/2015/06/education-kenya


33 
 

station advertisements and programs, community hall messages, and the setting up of different 

informative booths in strategic locations where people are encouraged to visit and seek guidance 

and clarification. To address the susceptibility of individuals with little to no education is to 

make knowledge and information about fintech lending as accessible as possible. The masses 

need to be sensitised about the benefits, processes and risks they are exposing themselves to by 

assenting to the services of the different fintech lending firms.  It is also necessary to consider the 

economic interests that are pushing more people towards adopting fintech lending apps;  in the 

same way these consumers are being informed about the obligations and content of the lending 

apps, they should be adviced that the money they are using should not be used for recreational 

purposes, but rather they should be adopted for self-development aspect. The consumers should 

be adviced not be overly reliant on these fintech apps as they risk getting trapped in a cycle of 

borrowing and repaying debts.  The incessant repayment demands that are used by these fintech 

firms to get back their money which include calling people on the borrowers’ contact list 

contributes to evasive measures by customers where they switch mobile networks, and for others 

the embarrassment that follows contributes to depression, stress and other mental health 

challenges. 

2.1.3 Overlapping Jurisdiction 

The Central Bank of Kenya (CBK) which is the main regulatory agency has the authority of 

regulating consumer credit from banks as well as other credit products. The said authority needs 

to cover fintech firms. However, this is not an exclusive oversight as other regulators in Kenya 

such as the communication and insurance share it. This is an indication that regulators do not 



34 
 

have the exclusive responsibility of regulating fintech products.96 This allows several products to 

pass through the regulatory gaps. Having different regulatory regimes can lead to diverse rights 

and a deviation from consumer protection.97 Consumers may not fully understand the regulations 

applicable to certain transactions because different regulatory bodies govern different fintech 

institutions. As a result, consumers are not sure of their redress rights or the regulatory 

institutions to turn to in case problems arise. To remedy against this it is advisable to similarly 

disseminate information about redress possibilities, processes and the options available to the 

consumers. The redress options should be condensed to simple to follow steps that guide the 

consumers to different departments/institutions where they can go to get assistance and be 

provided with avenues on how to seek redress.  

2.1.4 Data Protection 

Personal data of consumers are more often handled by third parties who put it at risk of being 

accessed and used inappropriately. The current legislation in Kenya does not define who is 

allowed to have access to data, when, how, and under what circumstances. This makes it difficult 

to protect consumer data while conflicting with the regulator's desire to prevent financial crimes. 

Law on data protection should integrate data on fintech to ensure that it is not put to undesirable 

use. It is not clear who is authorized to have access to an individual's data.98  

Data protection in developing countries shows a patchwork of regulations issued by different 

agencies that have overlapping jurisdiction as well as oversight; 99however, this is not applicable 

                                                           
96 Sejpal S and Rebelo D, ‘Kenya: Fintech 2019.’ International Comparative Legal Guides, 10 May 2019 - 

<https://iclg.com/practice-areas/fintech-laws-and-regulations/Kenya> on 8 June 2021  
97 Malala J, ‘Consumer protection for mobile payments in Kenya’ 15. 
98Malala J, ‘Consumer protection for mobile payments in Kenya’ 34  
99 Kovacs A, “Cybersecurity and data protection regulation in India: An uneven patchwork.” In CyberBRICS, 

Springer, Cham, 2021, 146 

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35 
 

to the Kenyan situation because there is specific data protection legislation that is implemented 

by specific authorities. Designing and enforcing data protection rules would require coordination 

between regulatory and supervisory authorities as fintech affects different sectors such as 

telecommunication and banking. Regulations to be put in place should be robust and consistent 

to hold fintech lenders responsible for the protection of data and should be held responsible for 

any misuse or breaches. On the other hand, the regulations should be neutral because imposing 

specific protocols and standards on an industry that is rapidly evolving can hinder innovation.100          

2.2 Regulatory Frameworks   

2.2.1 Constitution of Kenya 2010 

The Constitution is the supreme law of the land and the basis for other legal provisions on 

fintech lending and consumer protection. The Constitution provides for consumer protection 

under Article 46 (1) which states that consumers have the right to “goods and services of 

reasonable quality, to the information necessary for them to gain full benefit from goods and 

services, to the protection of their health, safety, and economic interests, and compensation for 

loss or injury arising from defects in goods or services.” Data protection for a consumer is 

further provided for under Article 31 (c) and (d) which state that “every person has the right to 

privacy which includes the right not to have information relating to their family or private affairs 

unnecessarily required, or the privacy of their communications infringed.”   

                                                           
100 Malala J, ‘Consumer protection for mobile payments in Kenya’ 35. 



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2.2.2 Central Bank of Kenya Act, Cap 491 

The CBK is the main regulatory body responsible for the formulation and implementation of 

monetary policy.101 Section 4 (1) of the Central Bank of Kenya Act states, “The principal object 

of the Bank shall be to formulate and implement monetary policy directed to achieving and 

maintaining stability in the general level of prices.” Under section 34 (2) additional services 

considered to be desirable may be provided by the CBK to institutions in Kenya. Section 34 (3) 

of the Central Bank of Kenya Act goes further to list the institutions which include a specific 

bank, financial institution, microfinance bank, and any person or body of persons which the CBK 

may recommend then prescribed by the Minister. This is an indication that the body of a person 

or persons may include fintech lenders. Be as it may, the CBK has been receptive to fintech 

where it allowed implementation of transfer services for mobile money when there was no 

legislation in place to govern the innovation. This critical decision led to financial services 

development and a basis for fintech innovations growth.102  

On the contrary, fintech lending practices in Kenya were intensely scrutinised and caused 

outrage from regulators and the public. One of the reasons for this was that principles of 

consumer protection could not be met. Terms and conditions offered contravened consumer 

protection laws with vague solutions being offered.103 This is evident in Civil Suit No. 400 of 

2016, Consumer Federation of Kenya (COFEK) v Commercial Bank of Africa, Central Bank of 

Kenya and Safaricom Limited where the Petitioner moved the court in seeking that additional 

                                                           
101 Blythin J and Van CJ, ‘The development of fintech in Nairobi: Contributions to financial inclusion and barriers to 

growth.’ Published Masters in Management Thesis, Lund University School of Economics and Management, 

Scania, 2017, 34. 
102 Sejpal S and Rebelo D, ‘Kenya: Fintech 2019,’ International Comparative Legal Guides,  
103 Syekei John, Indokhomi D and Issaias A, ‘Fintech 2021 Kenya: Trends and developments.’ Chambers & 

Partners, 18 March 2021 - <https://practiceguides.chambers.com/practice-guides/fintech-2021/kenya/trends-and-

developments> on 8 June 2021  

https://practiceguides.chambers.com/practice-guides/fintech-2021/kenya/trends-and-developments
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37 
 

sums that the 1st Respondent charged was unconstitutional and illegal, contrary to the Banking 

Act. The Petitioner prayed that the CBA be compelled to ensure full compliance with the 

Banking Act. Although the Petition was dismissed, the court pointed out that the CBK exercised 

its mandate of approving the M-Shwari product on the condition that the facilitation fee of 10% 

of the disbursed amount is reduced to 7.5%. In December 2020, concerns were raised by the 

CBK on fintech lending practices considered to be predatory.104 The CBK governor pointed out 

to parliament the need to protect consumers from lending practices that are unfair and plans to 

put in place laws that scrutinise fintech lenders.        

There is a proposed Central Bank of Kenya (Amendment) Bill, 2020 (National Assembly Bill 

No. 21) whose aim is to bring the digital financial sector under the jurisdiction of the CBK.105 

The bill was first to read on 28th July 2020 then it was handed over to the relevant committee for 

further action. The second bill, the Central Bank of Kenya (Amendment) Bill, 2020 (National 

Assembly Bill No. 47) intends to introduce licensing of fintech lending platforms. The first 

reading of this bill was done on 25th February 2021 then handed over to the relevant committee. 

The Central Bank of Kenya (Amendment) Bill, 2021 which is the third was gazetted on 16th 

April 2021. The evolution of the current legislation will help meet the changing public interest 

and consumer protection while promoting innovation. On the contrary, the regulator is given 

wide discretionary powers by the laws which should be exercised judiciously to avoid stifling 

innovation.          

                                                           
104 Syekei J, Indokhomi D & Issaias A. ‘Fintech 2021 Kenya’, 14 June 2021 - <https://iclg.com/practice-

areas/fintech-laws-and-regulations/kenya> on 28 July 2021  
105 Indokhomi D and Issaias A, ‘Opportunities and pitfalls in fintech regulatory push.’ Business Daily, 26 April 2021 

- <https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/opportunities-pitfalls-in-fintech-regulatory-

push-3376510> on 8 June 2021 

https://iclg.com/practice-areas/fintech-laws-and-regulations/Kenya
https://iclg.com/practice-areas/fintech-laws-and-regulations/Kenya
https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/opportunities-pitfalls-in-fintech-regulatory-push-3376510
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38 
 

2.2.3 Banking Act, Cap 488 

This provision is the anchor for banking operations in Kenya and a legal basis for the operation 

of fintech lending. The Banking Act identifies lending as a characteristic that constitutes a 

bank.106 Fintech lenders are not considered as banks per-se in respect to how a bank and banking 

business is defined. Under section 2 (1) of the Banking Act, a bank is defined as “a company 

which carries on, or proposes to carry, banking business in Kenya but does not include the 

Central Bank.” Further, the banking business does not define the mode of lending in fintech 

lending where money is lent on no deposits held by the financial institutions. Digital lenders do 

not take deposits. Therefore, they are not defined as banks and cannot be regulated by the CBK.  

On the contrary, fintech lenders are partly in banking because of the lending business through 

financial institutions in lending such as SACCOs and microfinance institutions that have not 

been regulated by the CBK would also be affected by this argument. These institutions have 

specific regulators. SACCOs have SACCO Societies Regulatory Authority while microfinance 

institutions have the Microfinance Unit in the Ministry of Finance.107     

2.2.4 Consumer Protection Act, No. 46 of 2012 

Section 4 provides for purposes of the Act which are “to promote and advance the social and 

economic welfare of consumers in Kenya by establishing a legal framework for the achievement 

and maintenance of a consumer market that is fair, accessible, efficient, sustainable and 

responsible for the benefit of consumers generally, reducing and ameliorating any disadvantages 

experienced in accessing any supply of goods or services by consumers, promoting ethical and 

                                                           
106 Section 2 (1) (d), Banking Act (Act No. 10 of 2010) 
107 Abd EESA, ‘The regulatory and supervision framework of microfinance in Kenya.’ 3 International Journal of 

Social Science Studies, 2015, 123. 



39 
 

fair business practices, protecting consumers from all forms and means of unconscionable, 

unfair, unreasonable, unjust or otherwise improper trade practices, including deceptive, 

misleading, unfair or fraudulent conduct, improving consumer awareness and information and 

encouraging responsible and informed consumer choice and behavior, promoting consumer 

confidence, empowerment and the development of a culture of consumer responsibility through 

individual and group education, vigilance, advocacy and activism, providing a consistent, 

accessible and efficient system of consensual resolution of disputes arising from consumer 

transactions, and providing for accessible, consistent, harmonized, effective and efficient system 

of redress for consumers.” There are no express provisions in the Act on fintech lending. 

However, based on how the provision is interpreted, fintech lending is regulated under the Act.   

2.2.5 Microfinance Act, No. 19 of 2006 

Microfinance institutions are directly regulated by the CBK but limits are placed on the activities 

to engage in. Activities that microfinance institutions are not allowed to engage in include 

enterprise capital investment, undertaking trade-in wholesale or retail, securities underwriting, 

and purchase.108 Also, the money lent by microfinance institutions that do not take deposits 

should be their own money. This brings in the similarity with fintech lenders who gain interest 

for lending their money. A distinction is brought in under section 11 (1) where microfinance 

institutions are expected to have minimum capital requirements before they are allowed to 

operate.109 This is a requirement that does not exist in fintech lending. This then establishes the 

position that an organization cannot be classified as a bank just because it is in the finance sector 

and does not have to be regulated by the CBK. 

                                                           
108 Abd EESA, ‘The regulatory and supervision framework of microfinance in Kenya.’   
109 Microfinance Act (Act No. 19 of 2006) 



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The Microfinance Act touches on fintech lending in the definition of what microfinance business 

is. It states that microfinance business provides loans as well as other facilities to households 

with low income and small enterprises.110 Additionally, there is a similarity between 

microfinance institutions and fintech lending in what constitutes them and the law. For instance, 

M-Shwari allows for saving and withdrawal at will which questions whether it is a microfinance 

institution. It has therefore been established that fintech lenders are involved in microfinance 

although they are not as conventional as microfinance institutions. They take part in 

advertisements, accept applications for loans, determine the eligi