A payday loan is a small loan that a borrower takes and repays on his/her next payday.


The maximum amount of a payday loan offered in Eastern Africa is $700, and it takes between 14- 30 days for it to mature. Although the interest rates of payday loans are high, the loan provides a fast method of solving financial emergencies. Lenders do not ask what the loan’s purpose is, therefore, the loan can be used by a small business owner in paying late bills or unexpected expenses. There are numerous benefits of taking a payday loan, but in this article, we will focus on what makes payday loans ideal for business owners in East Africa and the process of taking out these type of loans.

Benefits of Payday Loans to a Business Owners

1. Speed

Lenders will immediately approve a payday loan after you have provided the required information. This may include your age and your source of income. The application process will be quick and simple, and you will not be required to fill in any lengthy forms. After submitting the information, the lender will transfer the funds within a few hours or even minutes to your bank account or mobile wallet.

2. Convenience

The interactions and processes of these loans are conducted online. Besides, lenders will offer 24 hours customer service. The 24/7 service allows borrowers to access the loan from anywhere since a majority of borrower do not have easy access to a physical bank.

3. Few Requirements

The basic requirements for accessing this type of loan is a stable source of income, and the borrower must be at least 18 years of age. By meeting the above-mentioned requirements, you will most likely get a lender willing to offer you a loan. However, some lenders can inquire about your source of income and check if you have a record of defaulting on any of your previous payday loans.

4. Your Credit Score Does Not Affect Your Eligibility

Lenders will not look at your credit score when determining if you qualify for the loan. However, having a good credit rating will reduce the loan’s interest rate. Additionally, a payday loan can be used in protecting your credit rating.

Even if a short repayment seems to be a pitfall, a borrower can use this factor to his advantage. Repaying the loan on time enables a borrower to qualify for higher loan amounts in the future.

The process of acquiring a payday loan in East Africa is very easy. In Kenya for instance, the loan will be sent via M-pesa. To apply for the loan, a borrower will be required to download the mobile application of the lending company, sign up and provide his personal data, for instance, his email address, official names and identification number.

The borrower then submits the details and waits for the loan to be approved. If the loan is approved, the borrower will receive the loan through M-pesa/bank account or any other mobile wallet and a message containing repayment information will be sent to the borrower.

Some of the payday loan lenders may require the applicants to provide a Facebook page for identification purposes. When submitting your loan application, you will be told exactly when to repair the loan and the interest that you will be charged.

Digital Credit in East Africa – A Case Study of Kenya

In partnership with Kenya National Bureau of Statistics (KNBS) Central Bank of Kenya (CBK) and CGAP, FSD-Kenya carried out a survey in Kenya on the adoption of digital credit. The survey involved 3,150 Kenyans.

The findings of the research study showed that digital credit was slowly becoming the leading source for credit for a majority of Kenyans who want to use the funds either for day-to-day consumption needs or to finance their businesses’ working capital. Based on the survey, it is estimated that at least 27 percent of adult Kenyans (18+) have taken at least one digital loan.

A majority of those surveyed had taken a loan in the past 3 months, and this suggests that a huge number of Kenyans are active borrowers. M-Shwari leads the digital market in Kenya, and other market entrants are slowly catching up. M-Shwari benefitted from the first-mover advantage, and today it has as many borrowers as its closest competitor- KCB M-Pesa.

Both M-Shwari and KCB-Mpesa are offered via Safaricom’s M-Pesa platform- which is Kenya’s biggest telecommunication provider and has a network of customers that is far much higher than any FinTech or individual bank in Kenya.

Nonetheless, Kenyan customers can today choose from a plethora of lenders. Kenya’s three biggest banks( Co-operative bank, Equity Bank, and Kenya Commercial Bank) have launched their own digital credit services since 2016, either by developing a standalone smartphone application( for example Co-operative bank), establishing an independent virtual mobile network operator(for example Equity’s Equitel), or by partnering with Safaricom (for example KCB). Several FinTechs have also entered the market also.

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