Since 2022, Kenya has levied a 20% excise duty on the fees and interest charged by digital lending institutions. This tax raises the price of mobile loans and affects millions of users. Here's what you need to know.
What Is the Excise Duty?
The 20% excise duty is a government tax that applies to:
- Interest charged on digital loans
- Processing fees and service charges
- Any fees charged by digital lenders that do not hold deposit accounts
Important: This duty is charged at the time the loan is disbursed, not when you repay.
How It Affects the Cost of Your Loan
Example: A KSh 10,000 Loan
| Item | 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 the cost of your loan 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 |
Interest rates are approximate and vary based on individual terms.
Who Pays the Excise Duty?
Affected Borrowers
- All digital credit providers (DCPs) licensed by the CBK
- Mobile loan apps (Tala, Branch, Zenka, etc.)
- Borrowers using USSD-based lending
- 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.
The M-Shwari Approach
In March 2023, M-Shwari (operated by NCBA) began deducting the excise duty at the point of disbursement:
"If you take a loan of KSh 10,000 with a 7.5% fee (KSh 750), you will receive KSh 9,850 after the excise duty (20% of KSh 750 = KSh 150) is deducted upfront."
This means you receive less money than you requested but still repay the full amount.
Impact on Borrowers
The Numbers
- Over 8 million Kenyans rely on digital loans.
- Many cannot access loans from traditional banks.
- Higher prices push some borrowers toward unlicensed (illegal) lenders.
Industry Concerns
The Digital Financial Services Association of Kenya (DFSAK) has raised concerns:
- Higher prices reduce access to financial services.
- Poor competitiveness against banks.
- The risk of driving borrowers toward unlicensed lenders.
How to Reduce the Impact
1. Compare the Total Cost
Make sure you account for the total cost including the excise duty before borrowing:
- Use our loan calculator.
- Request a full breakdown before agreeing.
2. Consider Alternatives
- Bank account overdrafts - Cannot be subject to the excise duty.
- SACCO loans - Often cheaper overall.
- Salary advances - From your employer, usually not taxed.
3. Borrow Responsibly
- Borrow only what you need.
- Repay as early as possible (reduces interest).
- Avoid extending the loan term.
The Legal Framework
The Finance Act 2025 Changes
The Finance Act 2025 (signed in June 2025) amended the definition of "digital lenders" to:
- Narrow the scope of those required to pay the excise duty.
- Exclude certain deposit-taking institutions.
- Clarify how USSD-based lending is treated.
Industry Response
Digital lenders continue to advocate for:
- The removal or reduction of the excise duty.
- Parity with banks.
- Recognition of their role in expanding access to financial services.
Expected Changes
The debate over the excise duty continues in Kenya's parliament. Possible changes:
- A reduction to 10-15% has been proposed.
- An exemption of the tax for small loans below KSh 5,000.
- A phased removal of the tax as DCP regulations improve.
Please check back for new information as the laws change.
Frequently Asked Questions
Does the excise duty apply to Fuliza?
Yes. Fuliza charges a daily fee, and the 20% excise duty applies to those fees.
Can I get the excise duty refunded?
No. The excise duty is a final tax paid by the lender, but it is passed on to borrowers.
Why don't banks pay this tax?
Banks are regulated differently as deposit-taking institutions, and they are not included in this specific lending tax.
Does this apply to loans from outside the country?
The excise duty applies to lenders operating in Kenya, regardless of where their headquarters are located.
Conclusion
The 20% excise duty levied on digital loans is a real cost that affects millions of borrowers in Kenya. While it generates revenue for the government, critics argue that it harms financial inclusion. Always factor this tax into your borrowing decisions, and compare the total cost across different lenders.
Last updated: January 2026. Tax rules can change—confirm current rates with your lender.