Digital lenders operating without a Central Bank of Kenya (CBK) licence cannot enforce unpaid loans through the courts, a Nairobi magistrate ruled in a decision that could reshape the risks facing unlicenced fintechs.
In two judgments delivered on July 17, Resident Magistrate Gladys Kiama struck out debt recovery claims brought by Tri-State Capital Limited and Mombo iCapital Limited, ruling that the digital lending companies lacked the legal capacity to enforce their loan agreements because they had not demonstrated they were licenced to conduct lending business.
The rulings suggest that lenders operating without a CBK digital credit provider licence may struggle to enforce loan contracts, raising the commercial risks of lending before obtaining regulatory approval. While the decisions concern the two companies, they are likely to be closely watched by fintech lenders whose licence applications remain pending.
“The claimant has not demonstrated that it possesses the legal capacity and regulatory authority necessary to engage in the lending activities disclosed in the statement of claim,” the magistrate said.
Rather than determine whether the borrowers had defaulted, the court first considered whether the lenders had the legal authority to advance credit in the first place.
