Kenya Is Giving Buy-Now-Pay-Later A Free Hand Fuelling Unease

Kenya’s fast-growing Buy Now Pay Later (BNPL) sector is in the spotlight. The decision by the National Assembly Committee on Finance to exempt BNPL services such as Safaricom’s Lipa Mdogo Mdogo credit facility from Central Bank of Kenya (CBK) regulation marks a significant business victory. However, it raises pressing questions about consumer protection in a market already scarred by predatory digital lending practices.

Safaricom, Kenya’s dominant telco, successfully argued that Lipa Mdogo Mdogo, a program enabling customers to buy smartphones on credit, is integral to its core business rather than a standalone credit operation. This exemption shields it from CBK oversight, including controls on interest rates and operational standards imposed on non-deposit-taking credit providers under the proposed Business Laws (Amendment) Bill 2024.

The decision creates a regulatory divide in Kenya’s burgeoning BNPL sector, where gross merchandise value is expected to grow from USD 889.6 M in 2023 to USD 1.72 B by 2029, at an annual growth rate of 10.6%. Other Kenyan businesses offering BNPL services will also be exempted from CBK licensing, pricing scrutiny, and supervision.

A Growing Sector With Growing Risks

BNPL usage in Kenya has surged. A recent survey revealed that the proportion of Kenyans using hire purchase or lipa mdogo mdogo programs tripled from 2.1% in 2021 to 6.2% in 2024, driven by a wider range of options and economic pressures. Providers like Safaricom, Loop, and M-Kopa are helping millions access essential goods such as smartphones and solar kits, offering financial flexibility for consumers navigating a tough economy.

However, this convenience comes with risks. Kenya has a troubled history with predatory digital lending, where opaque practices, exorbitant fees, and aggressive recovery methods prompted a regulatory crackdown in 2021. Critics worry that exempting major players like Safaricom from oversight could open the door to similar abuses in the BNPL space.

CBK’s mandate under the amended law is clear: to rein in non-deposit-taking credit providers by licensing them, regulating pricing, and enforcing a code of conduct. By exempting Safaricom, concerns being voiced on social media spaces fear that regulators may have created a loophole that could complicate enforcement and leave consumers vulnerable.

A Boon for Business

For Safaricom, the exemption is a significant win. Its Lipa Mdogo Mdogo initiative, launched in 2020, has been a cornerstone of its strategy to boost smartphone penetration, a key driver of its core mobile services business. In 2024, it sold over 1.2 million smartphones, with support from global partners like Meta and Google.

The program allows customers to purchase 4G devices for as little as USD 0.20 per day, expanding Safaricom’s network of connected smartphones from 20.3 million in 2023 to 22.93 million in 2024.

Safaricom’s argument—that extending credit to sell devices is not the same as operating a credit business—resonated with lawmakers. “We have agreed with the stakeholder proposal noting the need for clarity when a business extends credit to a customer,” the committee stated in its report.

Despite the business benefits, consumer advocates are uneasy. The rapid growth of the BNPL market, fueled by economic hardships and e-commerce penetration, highlights the importance of robust regulation. According to the Kenya Buy Now Pay Later Business Report 2024, BNPL payments are expected to grow 16.8% annually, reaching USD 1.03 B this year.

This growth amplifies the potential for consumer exploitation if unchecked. Observers fear that without CBK oversight, programs like Lipa Mdogo Mdogo could theoretically impose high fees or harsh penalties, mirroring issues seen in the digital lending sector.

The exemption tugs at a critical tension in Kenya’s BNPL sector: fostering innovation while protecting consumers. While Safaricom and other core-business providers may argue for regulatory leniency, CBK faces the challenge of preventing regulatory arbitrage and ensuring fairness across the market.