20% Excise Duty on Digital Loans in Kenya: What Borrowers Need to Know
Since 2022, Kenya imposes a 20% excise duty on fees and interest charged by digital lenders. This tax significantly increases the cost of mobile loans and affects millions of borrowers. Here's what you need to understand.
What Is the Excise Duty?
The 20% excise duty is a government tax applied to:
- Interest charged on digital loans
- Processing fees and service charges
- Any fees charged by non-deposit-taking digital lenders
Important: This tax is charged at the point of loan disbursement, not when you repay.
How It Affects Your Loan Cost
Example: KSh 10,000 Loan
| Component | Without Tax | With 20% Excise Duty |
| Principal | KSh 10,000 | KSh 10,000 |
| Interest (10%) | KSh 1,000 | KSh 1,000 |
| Excise Duty (20% of interest) | - | KSh 200 |
| Total Repayment | KSh 11,000 | KSh 11,200 |
The 20% excise duty adds KSh 200 to your loan cost in this example.
Real Impact on Popular Loans
| Lender | Loan Amount | Monthly Interest | Excise Duty Added |
| M-Shwari | KSh 30,000 | 7.5% = KSh 2,250 | KSh 450 |
| Fuliza | KSh 5,000 | ~9% = KSh 450 | KSh 90 |
| Branch | KSh 20,000 | 12% = KSh 2,400 | KSh 480 |
| Tala | KSh 15,000 | 11% = KSh 1,650 | KSh 330 |
Rates are approximate and vary based on individual terms
Who Pays the Excise Duty?
Affected Lenders
- All CBK-licensed digital credit providers (DCPs)
- Mobile loan apps (Tala, Branch, Zenka, etc.)
- USSD-based lenders
- Fintech lending platforms
Exempt Institutions
- Commercial banks (KCB, Equity, Co-op, etc.)
- Deposit-taking SACCOs
- Microfinance banks
- Traditional bank loans
This creates an uneven playing field where digital lenders face higher costs than banks.
M-Shwari's Approach
In March 2023, M-Shwari (operated by NCBA) began deducting the excise duty at disbursement:
"If you borrow KSh 10,000 with a 7.5% fee (KSh 750), you'll receive KSh 9,850 after the excise duty (20% of KSh 750 = KSh 150) is deducted upfront."
This means you receive less than you borrowed but still repay the full amount.
Impact on Borrowers
The Numbers
- 8 million+ Kenyans rely on digital loans
- Many cannot access traditional bank credit
- Increased costs push some toward unregulated (illegal) lenders
Industry Concerns
The Digital Financial Services Association of Kenya (DFSAK) has raised concerns:
- Higher costs reduce financial inclusion
- Competitive disadvantage vs. banks
- Risk of pushing borrowers to illegal lenders
How to Minimize the Impact
1. Compare Total Costs
Always calculate the total cost including excise duty before borrowing:
- Use our loan calculator
- Ask for the full breakdown before accepting
2. Consider Alternatives
- Bank overdrafts - Not subject to excise duty
- SACCO loans - Often cheaper overall
- Salary advances - From employer, usually tax-exempt
3. Borrow Strategically
- Borrow only what you need
- Repay early when possible (reduces interest)
- Avoid rolling over loans
Regulatory Context
Finance Act 2025 Changes
The Finance Act, 2025 (assented June 2025) updated the definition of digital lenders to:
- Narrow the scope of who pays excise duty
- Exclude certain deposit-taking institutions
- Clarify USSD-based lending treatment
Industry Response
Digital lenders continue advocating for:
- Removal or reduction of the excise duty
- Level playing field with banks
- Recognition of their financial inclusion role
What the Future Holds
The excise duty debate continues in Kenya's parliament. Potential changes:
- Reduction to 10-15% has been proposed
- Exemption for small loans under KSh 5,000
- Phase-out as DCP regulation matures
Check back for updates as regulations evolve.
Frequently Asked Questions
Does excise duty apply to Fuliza?
Yes. Fuliza charges daily fees, and the 20% excise duty applies to those fees.
Can I claim back the excise duty?
No. The excise duty is a final tax paid by the lender but passed to borrowers.
Why don't banks pay this tax?
Banks are regulated differently as deposit-taking institutions and are exempt from this specific excise duty on lending.
Does this apply to loans from abroad?
The excise duty applies to lenders operating in Kenya, regardless of where they're headquartered.
Conclusion
The 20% excise duty on digital loans is a real cost that affects millions of Kenyan borrowers. While it generates government revenue, critics argue it undermines financial inclusion. Always factor this tax into your borrowing decisions and compare total costs across lenders.
Last updated: January 2026. Tax regulations may change—verify current rates with your lender.