Microfinance institutions (MFIs) in Kenya were once hailed as a lifeline for low- and middle-income earners. For years, they filled a critical gap left by mainstream banks, offering small loans to hustlers, traders, and rural communities that lacked collateral or access to traditional credit.

These loans helped Kenyans expand businesses, pay school fees, and weather financial emergencies — spurring growth at both household and national levels.

But the sector that once symbolized empowerment is now increasingly being associated with exploitation. Borrowers complain that microfinance institutions have “mutated into sharks,” burdening clients with hidden charges and exorbitant interest rates that leave them worse off than before.

From Empowerment to Exploitation

In the early 2000s, microfinance was celebrated as a tool for poverty reduction. Farmers in rural Kenya could access credit to buy seeds and equipment, while urban entrepreneurs secured small loans to grow businesses. Repayment rates were high, and success stories fueled confidence in the model.

Today, however, the narrative has shifted. Many MFIs charge effective annual interest rates ranging between 30% and 60%, far higher than commercial banks. For borrowers already struggling with economic hardship, the cost of credit has become unsustainable.

Worse still, aggressive debt collection tactics — including public shaming, property confiscation, and harassment — have left many Kenyans questioning whether MFIs are still serving their original purpose.

The Vicious Cycle of Debt

Instead of uplifting borrowers, critics argue that microfinance institutions are trapping Kenyans in a vicious cycle of debt. A trader who borrows Ksh 50,000 to boost stock may end up repaying almost double the amount within a year.

For many, the pressure to repay pushes them into taking additional loans — often from another lender — creating a cycle of indebtedness.

Small businesses, which form the backbone of Kenya’s economy, are among the hardest hit. Rather than fueling growth, MFI loans are increasingly leading to closures as repayment obligations outpace profits.

Calls for Reform

Consumer lobby groups and financial experts are calling for tighter regulation of the sector. They argue that microfinance, if properly managed, can still be a force for good. Transparent interest rates, fairer lending terms, and ethical collection practices could restore trust in the industry.

The Central Bank of Kenya has already moved to regulate digital lenders, but many believe microfinance institutions also need closer scrutiny. Without reform, what began as a noble tool to uplift Kenyans risks being remembered as yet another financial trap.