ABA Editorial · Dec 18, 2025 · 13 min read
Nigeria has over 200 licensed digital lending platforms as of 2025. Kenya's M-Shwari controls roughly 34 percent of the digital loan market. Tala has 3.5 million Kenyan borrowers alone. But the standalone lending model is breaking, and regulators are cracking down. Inside the FairMoney and Carbon pivots, the Kenya regulations, and why behavioral credit scoring actually works.
African digital lending went through its own version of the 2021 boom and 2023 bust, with additional African-specific complications. The boom was built on a simple thesis: hundreds of millions of Africans lack traditional credit histories, but they all have phones, and phones generate data that can be used to underwrite credit at scale. The companies that moved early into this space (Tala, Branch, FairMoney, Carbon, Aella, PalmCredit, Okash, M-Shwari, Fuliza) built the first genuine consumer credit infrastructure for markets that traditional banks had given up on. By 2023 and 2024, the model was under severe pressure from regulatory crackdowns, rising default rates, and the fundamental difficulty of running a standalone lending business in a market with no stable low-cost deposit base. This is a market report on where African digital lending actually stands in 2026, which business models have survived, and why.
The African digital lending platform market was forecast by Data Bridge Market Research to grow at a compound annual growth rate of 18.7 percent between 2025 and 2032. Kenya and Nigeria are the two largest markets by a wide margin, and they have very different structures.
In Kenya, the market is dominated by telco-anchored products. According to Frontier Fintech analysis, M-Shwari (a joint product of Safaricom and NCBA Bank) holds roughly 34 percent market share of Kenya digital lending by disbursement volume. Fuliza, the M-Pesa overdraft service, holds approximately 25 percent. KCB M-Pesa holds about 15 percent. Tala holds approximately 13 percent and Branch holds approximately 9 percent. That leaves over 30 other licensed lenders fighting over approximately 4 percent of the market. This is a winner-takes-most dynamic, and the winner in Kenya is anything integrated directly with M-Pesa.
In Nigeria, there is no single anchor platform like M-Pesa, so the market is more diffuse. Leading digital lenders include FairMoney, Carbon (formerly Paylater), Branch, PalmCredit, Okash, and Renmoney. Download statistics show Branch, FairMoney, PalmCredit, and Okash each with over 10 million cumulative app downloads, and Carbon with over 5 million. By 2025, Nigeria had over 200 licensed digital lending platforms operating through the Federal Competition and Consumer Protection Commission (FCCPC) registration process. That saturation is the symptom of a market where barriers to entry are low but where achieving sustainable unit economics is very hard.
The original idea behind digital lending in Africa was that mobile phone data could substitute for traditional credit bureaus. Tala, for example, captures information like borrower mobility (measured by cell tower movements and cities visited), financial transactions (inferred from SMS messages mentioning amounts), and social network signals (contact list size and diversity, texting behavior). This data is used to build credit scoring models that predict default probability for customers who have no formal credit history, no bank account, no tax filings, and no collateral.
Does it actually work? A Harvard Business School study published in 2025 and based on Tala's Kenyan operations provides some of the clearest empirical evidence. The study took advantage of Tala's internal test in which starting in 2018 the company randomly approved some loan applications that would otherwise have been rejected by its algorithm. Researchers compared the outcomes of approximately 5,000 randomly approved borrowers with approximately 4,400 comparable rejected applicants. The study found that even the marginal borrowers (those who would normally have been rejected) experienced significant improvements in financial well-being after receiving Tala loans, with benefits especially pronounced when loans were used for business purposes. Average loan size was approximately USD 36 for a 28-day term with a one-time fee of about 15 percent. Tala globally has approximately 10 million borrowers, of whom approximately 3.5 million are in Kenya. FairMoney, in 2020 alone, disbursed loans worth USD 93 million to over 1.3 million Nigerian users, according to OECD documentation of the sector.
The evidence is that well-targeted digital lending does work, at least for marginal borrowers, at least when the lender maintains good practices around transparent fee disclosure and ethical collection. Branch International has disbursed over USD 600 million to more than 3 million customers across Kenya, Nigeria, and Tanzania, using alternative data that includes SMS transaction patterns, contact list diversity, and device signals.
The problem is not that alternative data credit scoring does not work. The problem is that standalone consumer lending, even when it works, is a difficult business to sustain profitably. Frontier Fintech's analysis of the African digital lending reckoning identifies the structural issues clearly.
First, standalone lenders have no deposit base. Unlike banks, they cannot fund loans from customer deposits at low cost. They have to raise debt facilities or equity, which is expensive, especially when risk-free interest rates rise as they did in 2022 and 2023. Second, customer acquisition costs are high. Lenders spend heavily to acquire customers who may take one loan and never come back. Third, regulatory pressure has intensified everywhere. In Kenya, the Central Bank introduced new regulations targeting non-deposit-taking credit providers, creating a two-tier governance structure (tier one for providers with initial capital exceeding USD 150,000, tier two for smaller lenders), mandating risk management standards, and imposing debt collection restrictions that curtail aggressive tactics. In Nigeria, the FCCPC introduced the Digital, Electronic, Online, or Non-Traditional Consumer Lending Regulations 2025, which similarly tightened conduct standards and collections practices.
Fourth, and most damaging to the original thesis, abusive collection practices by some lenders created political backlash. Regulators cracked down on the practice of "shaming" borrowers by notifying their contact lists when they defaulted. The practices that made the original lending model economically viable at high default rates became illegal or reputationally unsustainable.
The companies that survived the reset have almost all pivoted from standalone lending into broader financial services, building diversified revenue streams. FairMoney obtained a microfinance bank license from the Central Bank of Nigeria and now offers bank accounts, free transfers, and debit cards alongside its lending products. Carbon (formerly Paylater) made a similar pivot, building toward a full digital banking offering. The strategic logic is that a lender with a banking license can take customer deposits, which are a lower-cost source of funding than wholesale debt facilities. A lender that can offer savings and payment accounts builds stickiness that pure lenders cannot. And a lender with multiple product lines can cross-subsidize losses in one line with profits from another.
The Frontier Fintech analysis concludes that the standalone digital lending model is approaching the end of its viability, and that "resilience and future growth belong to those who build diversified, customer-centric financial ecosystems." The implication is that future African digital lending will look less like Tala in 2018 and more like FairMoney in 2026: a bank that uses alternative data underwriting as one product line inside a broader financial services stack.
One structural gap that remains is African credit bureau infrastructure. In Kenya, the Credit Reference Bureaus (CRBs) aggregate data from licensed lenders, but the consolidation of data across bureaus and across countries is inconsistent. In South Africa, TransUnion SA operates a mature bureau. In Nigeria, the CRC Credit Bureau, CreditRegistry, and FirstCentral Credit Bureau compete. But the coverage gap is enormous: the majority of African adults have no bureau footprint at all, which is why alternative data scoring matters in the first place.
The infrastructure players worth watching include Smile Identity (provides identity verification and KYC to African fintechs), Okra (provides bank account data APIs, the African analog to Plaid), and Mono (similar bank-data-as-a-service). Together with alternative data scoring from platforms like Tala and Branch, these firms represent the data infrastructure layer that will make African consumer credit work at scale in 2026 and beyond.
Three things. First, whether more standalone digital lenders successfully pivot to full banks, or whether more fail and shut down as the collapse wave continues through 2026. Second, whether Kenya's tiered regulatory framework becomes the template other African markets adopt, or whether each country develops incompatible rules. Third, whether the partnership between credit bureaus and alternative-data scoring providers mature into a single integrated underwriting layer, which would accelerate the entire category.
The longer-term observation is that digital lending in Africa is not going away. The demand is real, the data is there, and the alternative data thesis is empirically validated. What is changing is that the business model is moving from standalone lending to embedded lending, from aggressive growth to disciplined underwriting, and from winner-takes-all consumer acquisition to long-term relationships with customers. That is a healthier, slower, less venture-friendly industry. It is also more likely to last.
This report draws on Frontier Fintech Substack's Issue 96 analysis "Why Digital Lending is Becoming a Bad Business" (September 2025); Harvard Business School / The Accounting Review study on Tala's Kenyan operations (April 2025); OECD working paper "FinTech lending in Sub-Saharan Africa" (June 2024); Data Bridge Market Research on the African digital lending platform market; Unipesa analysis of African fintech trends 2025 to 2030; and public regulatory communications from the Central Bank of Kenya, the Central Bank of Nigeria, and Nigeria's Federal Competition and Consumer Protection Commission.