M-PESA's next act begins where banks still fall short: lending

As I sit in Nairobi's bustling streets, the sounds of hawkers and vendors fill the air. Amidst the vibrant chaos, a quiet reality lingers: millions of Kenyans rely on expensive digital loans and shylocks to meet their financial needs. Safaricom, the telco giant behind the mobile money service M-PESA, has been watching this phenomenon unfold. For nearly two decades, M-PESA has revolutionized how Kenyans pay, save, and transfer money. Now, the company is turning its attention to the harder problem of lending.

Peter Gichangi, Safaricom's head of Super Apps, describes the pain of Kenya's credit market in stark terms. "There is real pain," he says. The country's small and medium-sized enterprises (SMEs) account for more than 90% of businesses and employ millions of people. Yet, they consistently cite financing as one of their biggest constraints. Many operate without audited financial statements, formal collateral, or lengthy banking histories, making them difficult for traditional lenders to assess.

Kenya's credit gap is a pressing issue. Despite successive interest rate cuts by the Central Bank of Kenya (CBK), private sector credit growth has recovered, but cautiously. After a contraction of 2.9% in January 2025, credit growth rebounded to 8.1% in March 2026. Average commercial lending rates have fallen to about 14.7% from 17.2% in late 2024. However, banks continue to carry bad loans, with the industry's non-performing loan ratio rising to 15.6% in March. This has made lenders selective about where they deploy capital.

As a result, many households and small businesses turn to digital lenders charging steep interest rates. "The demand for money is there," says Andrew Mutha, chief executive of Safaricom Money Transfer Services. "Banks are saying, Look, you're too risky." M-PESA, with its massive digital payments platform serving over 30 million customers, believes it can use its playbook to expand access to credit.

Banks are risk-averse when it comes to lending to SMEs and low-income households. They require collateral, audited financial statements, and lengthy banking histories, which many small businesses cannot provide. This has led to a credit gap, where those who need credit the most are often unable to access it. The consequence is a reliance on expensive digital loans and shylocks, which perpetuate a cycle of debt.

Digital lenders have filled the gap left by traditional banks. They offer quick access to credit, but at a steep price. Interest rates can range from 20% to 30% per annum, making it difficult for borrowers to repay their loans. This has created a digital credit trap, where borrowers are forced to take on more debt to pay off their existing loans. The consequences are devastating: financial ruin, destroyed credit scores, and a loss of trust in the financial system.

Safaricom is betting that its mobile money service can be the solution to Kenya's credit gap. By leveraging its massive customer base and digital payments platform, M-PESA aims to provide accessible and affordable credit to SMEs and low-income households. The company is open to partnering with external investors to make this vision a reality. As Peter Gichangi notes, "If there are people interested in partnering with us.. We are open to having those discussions."

• Kenya's SMEs account for more than 90% of businesses and employ millions of people.
• The country's credit gap is a pressing issue, with many SMEs and low-income households unable to access credit.
• Banks are risk-averse when it comes to lending to SMEs and low-income households, requiring collateral, audited financial statements, and lengthy banking histories.
• Digital lenders offer quick access to credit, but at a steep price, with interest rates ranging from 20% to 30% per annum.
• M-PESA aims to provide accessible and affordable credit to SMEs and low-income households, leveraging its massive customer base and digital payments platform.

As I reflect on M-PESA's next act, I am struck by the complexity of Kenya's credit market. The country's financial system is a double-edged sword: it provides access to credit for those who need it, but also perpetuates a cycle of debt for those who cannot afford it. M-PESA's entry into the credit market is a welcome development, but it will require careful navigation to avoid the pitfalls of digital lending. The future of Kenya's financial system hangs in the balance, and M-PESA's next act will be a crucial test of its ability to provide accessible and affordable credit to all.