A Nairobi Small Claims Court has dismissed two debt recovery cases filed by digital lenders who were not licensed by the Central Bank of Kenya (CBK), marking a significant ruling in the management of non-performing loans.

Resident Magistrate Gladys Kiama ruled that Tri-State Capital Limited and Mombo iCapital Limited lacked the legal authority to enforce their loan agreements in court. The two lenders sought to recover Sh500,000 and Sh162,297 respectively from borrowers Geoffrey Mucuku and Florence Wawira.

Legal Authority and Licensing

The magistrate emphasized that neither company demonstrated they were authorised by the CBK to conduct money-lending activities, a requirement under the Banking Act. This law mandates that all entities engaging in financial business must obtain a valid CBK licence.

"Conducting lending business without such licensing amounts to an illegality and economic risk," the magistrate stated, highlighting the role of regulation in protecting the public from unregulated lending practices.

Case Details

  • Tri-State Capital claimed it lent Mr. Mucuku Sh213,500, repayable by April 2021, secured against a motor vehicle. The outstanding debt reportedly rose to Sh500,000 after default and accrued charges.
  • Mombo iCapital stated it lent Ms. Wawira Sh65,000 in mid-2025, with interest and late payment fees increasing the debt to Sh162,297 by October 2025.

Instead of assessing the borrowers’ liability, the court focused on the lenders’ legal capacity to pursue the claims. The ruling concluded that unlicensed lenders cannot seek court enforcement of debts arising from unlawful lending.

Implications

This decision reinforces the CBK’s regulatory framework introduced in December 2021, which requires digital lenders to be licensed. Since April 2022, the CBK has licensed 252 digital credit providers out of over 800 applicants, aiming to curb predatory lending and protect consumer rights.

The ruling also addresses concerns over high interest rates and privacy violations by some mobile-based lenders, who have been criticized for aggressive debt collection tactics.

Magistrate Kiama’s verdict underscores that without CBK licensing, digital lenders lack standing to initiate legal action for loan recovery, setting a precedent that could impact ongoing and future cases involving unlicensed lenders.