The 3% Loan That Costs 61%: Boda Boda Riders Cannot Wait Until March 2027The 3% Loan That Costs 61%: Boda Boda Riders Cannot Wait Until March 2027

That gap between the advertised rate and the real one is the scandal Parliament's Finance and National Planning Committee will confront when asset financiers appear before it on 5 November. Our view is simple: the hearing must end with lenders putting their true prices on the public record, and the Central Bank of Kenya must not let riders wait until March 2027 for protection that should already be in force.

Kimani Kuria's 110 Cases Against the Lenders

The committee, chaired by Molo MP Kimani Kuria, says it has received 110 cases of alleged predatory lending, with some customers saying they paid three or four times what they borrowed. Those figures are still allegations; the committee has not tested them against lenders' records, and no lender has been found at fault.

The pattern behind the complaints is no secret, however. Riders say charges were not disclosed, logbooks arrived late after heavy repayments, and bikes were taken back near the finish line. When MPs first invited pay-later firms to explain themselves, Mogo Auto asked for a new date rather than attend.

A rider's motorbike is not a luxury. It is the machine that earns the instalment. Lose it in month eleven and he loses both the money already paid and the income needed to start again.

The Flat-Rate Arithmetic on a KSh 120,000 Bike Loan

Mwenendo's own worked example shows how the trick works. A rider borrows KSh 120,000 ($924.71) over 12 months at "3% a month, flat". Flat means interest is charged on the full KSh 120,000 for the whole year, even as he pays it down. He hands over KSh 43,200 ($332.90) in interest, or about KSh 453 ($3.49) a day.

On paper that looks like 36% a year. Measured the way banks quote loans, on the balance actually still owed, the same pay-later motorbike loan costs about 5.08% a month, or roughly 61% a year. Commercial banks charged an average of 14.34% in August, so the rider is paying more than four times the price of mainstream credit while being told he is paying far less.

We do not argue that 61% is automatically illegal or that every lender behaves badly. We argue that a price a borrower cannot see is not a price he has agreed to.

Lenders' Strongest Case, and Its Limit

The lenders have a serious answer, and it deserves a fair hearing. Riders often have no payslip, no credit history and no collateral except the bike itself. Motorbikes are stolen, crashed and hidden. Defaults are costly, and a lender that cannot price that risk will simply stop lending. Kenya learnt this once already: the 2016 cap on bank interest rates is widely blamed for squeezing credit to small borrowers, and it was repealed in 2019.

We accept all of that, which is why we are not calling for a rate cap. Disclosure is not price control. A lender confident that 61% is a fair price for the risk it carries should have no difficulty printing 61% on the contract. The only business model threatened by honest quotation is one that depends on the customer not understanding the bill.

CBK's Rules Arrive Too Late for Today's Riders

Parliament has already done its part on paper. The Business Laws (Amendment) Act of 2024 put credit providers that do not take deposits under the Central Bank's supervision, and the Central Bank of Kenya's new regulations set out licensing, pricing and conduct rules for them.

Those rules matter. A summary of the final regulations by the law firm Bowmans shows lenders need the Central Bank's approval before changing a product's interest rate, must give customers 30 days' notice of pricing changes, and can recover no more on a bad loan than the principal outstanding, matching interest and reasonable costs.

The problem is the calendar. Existing operators have until 29 March 2027 to apply for a licence or registration. That is more than five months in which a rider can sign a flat-rate contract with an unregistered lender, fall behind, and lose his bike under the old way of doing business.

Three Demands Before the Next Repossession

We call on the Finance and National Planning Committee, at the 5 November hearing, to require every asset financier that appears to table three things: its motorbike loan rates restated as an annual rate on the reducing balance, the number of motorbikes it repossessed in the past 12 months, and how the sale money from each repossession was credited to the borrower's account.

Any lender that refuses should face the Standing Order 191 summons the committee has already threatened. The committee's report should reach the House by 5 December, with those figures published in full.

We call on the Central Bank of Kenya to publish, by 31 December, a standard one-page cost statement that every asset-finance and pay-later lender must hand a customer before signing.

It should show the annual rate on the reducing balance, the total shillings payable, the date the logbook will be handed over, and whether any repayment is linked to a foreign currency.

The Central Bank should also publish, month by month, the names of lenders that have applied for a licence or registration, so riders can check who is coming inside the rules before March.

Finally, we call on the lenders themselves not to wait for compulsion. Any firm that quotes a flat rate can start quoting the reducing-balance rate beside it tomorrow at no cost beyond a reprinted form.

The 61% Test for 5 November

The measure of the hearing is not how angry MPs sound or how contrite lenders appear. It is whether, by the end of the year, a rider walking into a showroom in Kisumu or Eldoret is told, in writing and in shillings, what his motorbike will really cost him.

If 61% is the honest price of the risk, say so. If it is not, the lenders have some explaining to do. Either way, the rider deserves the number before he signs, not after the bike is gone.