An Empirical Analysis of the Determinants of Digital Credit Default in Kenya

Kenya has a vibrant Digital Financial Services sector characterized by innovative and technology-driven products. The mobile money revolution has pioneered financial inclusion through services such as M-PESA and recently through digital credit providers such as M-Shwari, Tala and Branch among others. This paper sought to examine the determinants of digital credit default in Kenya. The objectives of the study were: i) to determine how digital illiteracy influences loan default, ii) to analyze the correlation between betting behavior and digital credit distress and iii) to assess the impact of economic shocks on the likelihood of default. The study utilized a quantitative, cross sectional research design using secondary data from the 2024 FinAccess survey in Kenya to examine the relationship between borrower characteristics and the probability of default. From a sampling frame of 20872 borrowers, stratified sampling technique was used to identify 6571 digital borrowers that formed the sample size. A probit model was estimated using maximum likelihood estimation on E-views. Findings indicate a marginal effect for illiteracy, showing that an illiterate borrower is 4.5 per cent more likely to default compared to a digitally literate one. Similarly gambling and sickness yielded 8.4 per cent and 13 per cent respectively on the probability of default. On demographic characteristics, male borrowers were found to be riskier than female, with a coefficient value of -0.037377, implying that being male increases default risk by 3.7 per cent. Income had a negative effect on default, implying that higher income reduces the probability of default. Based on these findings, the study concludes that credit default is largely contributed by a combination of factors including financial literacy, sickness, gambling and income level. The study recommends that credit reference bureau listing mechanism be reviewed to account for verifiable shocks such as illness and that gambling should be considered as one of the eligibility criteria for digital lending since it enhances default rate.

Digital Credit, Loan Default, Financial Inclusion

1. Asror Nigmonov, Syed Shams, & Khorshed Alam (2022): Macroeconomic determinants of loan default: Evidence from the US peer-to-peer lending market. [Google Scholar] [Crossref]

2. Central Bank of Kenya, KNBS, & FSD Kenya. (2024). 2024 FinAccess Household Survey Report. Nairobi: Government Printer. https://www.centralbank.go.ke/wp-content/uploads/2024/12/2024-FINACCESS-HOUSEHOLD-SURVEY-MAIN-REPORT.pdf [Google Scholar] [Crossref]

3. Chamboko, R., & Guvuriro, S. (2021). The role of betting on digital credit repayment, coping mechanisms and welfare outcomes: Evidence from Kenya. International Journal of Financial Studies, 9(1), 10. https://doi.org/10.3390/ijfs9010010 [Google Scholar] [Crossref]

4. CM Advocates LLP. (2025). The Rise of Non-Deposit-Taking Credit Providers in Kenya: How the 2024 Business Laws Amendment Act is Changing the Credit Game. https://cmadvocates.com/blog/the-rise-of-non-deposit-taking-credit-providers-in-kenya-how-the-2024-business-laws-amendment-act-is-changing-the-credit-game/ [Google Scholar] [Crossref]

5. FSD Kenya. (2021). The State of Digital Lending in Kenya. https://www.google.com/search?q=https://fsdkenya.org/publication/the-state-of-digital-lending-in-kenya-2021/ [Google Scholar] [Crossref]

6. Izaguirre, J.C, Valenzuela, M., Arenaza, S., and Meagher, P (2025): Responsible Digital Credit: Frontier Solutions for Authorities and Providers. [Google Scholar] [Crossref]

7. Jagodziński, T. (2024, December 18). Gambling spending trends in Kenya. African Gambit. https://www.google.com/search?q=https://africangambit.com/gambling-spending-trends-kenya-2024/ [Google Scholar] [Crossref]

8. Mwaura, J. (2023). Silicon savannah or digitising marginalisation? A reflection of Kenya's government digitisation policies, strategies, and projects. In Communication Rights in Africa (pp. 17). Routledge. https://www.taylorfrancis.com/chapters/edit/10.4324/9781003388289-4/silicon-savannah-digitising-marginalisation-job-mwaura [Google Scholar] [Crossref]

9. Right for Education. (2025). Burden of Digital Lending in Kenya. https://www.google.com/search?q=https://rightforeducation.org/2025/01/burden-of-digital-lending-kenya/ [Google Scholar] [Crossref]

10. Sommer, C., Nsengumuremyi, A., Mader, A., & Mußhoff, O. (2025). How to make mobile money and digital financial services work for consumers: Lessons from Kenya (Policy Brief 10/2025). German Institute of Development and Sustainability (IDOS). https://www.idos-research.de/fileadmin/user_upload/pdfs/publikationen/Policy_Brief/2025/PB_10.2025.pdf [Google Scholar] [Crossref]

• Impact of Foreign Direct Investment in India
• Issues Involved in Digitalisation Special Reference to Indian Tourism Growth
• Relationship Marketing and Customer Loyalty in the Fast-Moving Consumer Goods (FMCG) Industry in Nairobi County
• Financial Literacy or Financial Inclusion? Which is Which, What is What—To Achieve Uganda’s 10-Fold Economic Growth By 2040
• Harnessing Natural Gas for Economic Transformation: Overcoming the Regulatory and Infrastructural Bottlenecks in Nigeria