Digital Lenders Under Scrutiny as CBK Flags Compliance Gaps in Fight Against Dirty Money

In recent years, digital lenders have become a lifeline for millions of Kenyans locked out of traditional banking. But a new report by the Central Bank of Kenya (CBK) suggests these same lenders may now be the financial system’s softest spot.

The Preventive Measures Survey, carried out by CBK in December 2024, raises red flags about how digital credit providers — often praised for their speed and accessibility — are falling behind when it comes to stopping money laundering, terrorism financing, and the flow of illicit funds.

Cracks in Compliance

The findings are sobering. While 78 percent of digital lenders said their staff were at least somewhat familiar with international sanctions protocols, nearly a quarter admitted to having no familiarity at all. Only 35 percent of providers conduct enhanced due diligence, the deeper checks required for high-risk clients.

Even basic screening is inconsistent. Seventy-one percent of digital lenders screen their customers against global sanctions lists, but less than half keep those lists up to date. Alarmingly, 8.5 percent of surveyed lenders had no screening measures in place whatsoever.

When Technology Falls Short

Unlike commercial banks and microfinance institutions — many of which now rely on AI and automated tools for monitoring — digital lenders are still largely dependent on manual processes. Screening is often done “as needed,” rather than routinely. Nearly half of the respondents couldn’t name a single screening tool they use or recommend.

This lack of technological integration, the CBK warns, creates “significant compliance risks.”

How Others Compare

The report doesn’t just single out digital lenders. It offers a comparative snapshot of Kenya’s broader financial ecosystem:

• Commercial banks are leading in compliance, routinely updating sanctions lists and using automated tools.
• Microfinance banks showed solid performance, with 100 percent screening customers and 75 percent using technology.
• Money remittance providers (MRPs) and foreign exchange bureaus (FXBs) demonstrated strong awareness of their obligations, though some only screen clients on a need basis.
• Payment service providers (PSPs) showed relatively high levels of awareness, but varied in how frequently they conduct checks.

Across the board, CBK noted a need for more consistent screening, better technology, and deeper training.

Regulators Call for Urgency

To plug the gaps, the CBK is urging financial institutions — particularly digital credit providers — to invest in smarter tools and stronger internal systems. Among the key recommendations: routine automated screening, better training for frontline staff, improved coordination with regulators, and wider adoption of AI for risk detection.

“Digital lenders are vital for financial inclusion,” the CBK wrote. “But that cannot come at the cost of financial integrity.”

Convenience with Consequences

The rise of mobile lending in Kenya has been nothing short of transformative. From students covering tuition shortfalls to shopkeepers restocking shelves, millions rely on fast loans from their phones. But the CBK survey suggests that behind the speed and convenience lies a growing blind spot.

With these gaps exposed, digital lenders are firmly under scrutiny — not just by regulators, but by a financial system increasingly dependent on trust, transparency, and accountability.

Mark your calendars! TechTrends Pulse lands in Nairobi this August! Join top tech leaders, innovators & AI experts for a half-day of keynotes, showcases & sharp insights on business transformation. RSVP now -limited slots available! Register here.

Follow us on WhatsApp, Telegram, Twitter, and Facebook, or subscribe to our weekly newsletter to ensure you don’t miss out on any future updates. Send tips to editorial@techtrendsmedia.co.ke