Your Boda, Their Logbook: The Real Cost of Kenya's Pay-Later Motorbike LoansYour Boda, Their Logbook: The Real Cost of Kenya's Pay-Later Motorbike Loans

That is the deal at the heart of the inquiry MPs opened this week into Buy Now Pay Later and asset-finance lenders. This explainer walks through how these loans actually work: what a "flat" interest rate really costs, why some repayments are tied to the US dollar, what happens when you miss payments, and what the Central Bank of Kenya's new rules change. The same logic applies to phones, fridges and pick-ups bought in small instalments, so it is worth learning once.

Pay-Later Finance Explained in One Boda Boda

Start with the basic shape. In an asset-finance deal, the lender buys the motorbike, you pay a deposit, and you clear the rest in daily, weekly or monthly instalments. In a typical deal the lender keeps its name on the logbook until the final shilling is paid, which is why the asset can be taken back if you fall behind.

Mwenendo reported that MPs summoned pay-later firms to explain their licensing, loan terms, arrears notices and repossessions. Riders' complaints over the years have centred on the same pressure points: charges they did not expect, logbooks that were slow to arrive after heavy repayments, and bikes taken back close to the finish line.

None of that makes pay-later finance bad. For a rider without a payslip or a bank loan, it may be the only route to owning the tool that earns the money. The trick is knowing what you are signing.

The "3% a Month" Rate That Really Costs 61%

Here is a worked example with illustrative numbers. Otieno wants a motorbike priced at KSh 150,000 ($1,155.71). He pays a KSh 30,000 ($231.14) deposit and borrows the remaining KSh 120,000 ($924.57) over 12 months at "3% a month, flat".

Flat means the interest is worked out on the full KSh 120,000 for the whole year, even though Otieno repays part of it every month. So the interest is 3% x 12 months x KSh 120,000, which comes to KSh 43,200 ($332.85). He repays KSh 163,200 ($1,257.42) in total, or KSh 13,600 ($104.78) a month, about KSh 453 ($3.49) a day.

That sounds like 36% a year. It is not. By month six, Otieno has already paid back roughly half the loan, yet he is still charged interest as if he owed all of it. Work the same payments out on the balance he actually owes, the way a bank quotes a loan, and the cost is about 5.08% a month, or roughly 61% a year.

So the question to ask any lender is simple: "Is that rate flat or on a reducing balance?" A flat rate roughly doubles in real terms once you convert it. For comparison, Mwenendo has reported that average bank lending rates sit at 14.34% a year, which is one reason riders without bank access end up here.

Shilling Loans With Dollar Strings Attached

Some contracts add a second twist. The Competition Authority of Kenya found in October 2024 that Mogo Auto made "false and misleading representations", fined it KSh 10.85M ($83,596.58) and ordered refunds of KSh 344,939 ($2,657.67) to three customers.

Among the complaints was a loan paid out in shillings but with repayments linked to the US dollar, as a report on the Mogo case sets out.

A dollar link moves the currency risk from the lender to you. If Otieno's KSh 13,600 instalment were tied to the dollar and the shilling weakened by 3%, his payment would rise to about KSh 14,008 ($107.93) a month without him borrowing a single extra shilling.

The shilling has been unusually steady, but Mwenendo's analysis of the shilling's thinning cushion explains why that calm is not guaranteed.

Missed Payments, Repossession and the New Cap

Miss enough instalments and the loan becomes "non-performing", the industry's term for a loan that has stopped being paid.

Under the Central Bank of Kenya's new rules for lenders that do not take deposits, a loan of 30 days or less turns non-performing once money is overdue for 30 days, and a longer loan after 90 days, a Bowmans summary of the regulations shows.

From that moment, what a lender can recover is capped. It is limited to the principal outstanding when the loan went bad, interest of no more than that same amount, and reasonable recovery costs. Say Otieno stops paying with KSh 60,000 ($462.29) of principal left. The most the lender can recover is KSh 60,000 in principal, up to KSh 60,000 more in interest, plus reasonable costs, however long the dispute runs.

If the bike is repossessed and sold, the sale money should reduce what he owes. That is exactly the point MPs want lenders to explain: how proceeds are applied, and whether a rider who loses the asset still faces a bill afterwards.

CBK Licences, Fees and the March 2027 Deadline

The rules exist because Parliament widened the Central Bank's reach. The Business Laws (Amendment) Act of 2024 brought all credit providers that do not take deposits under its supervision, not just digital lenders. The Central Bank's draft regulations listed asset financing and Buy Now Pay Later among the activities covered.

Under the final version, firms with initial capital of KSh 20M ($154,095.08) or more need a licence, smaller ones register, and existing operators must apply by 29 March 2027. Lenders need the Central Bank's approval before changing a product's interest rate, and must give customers at least 30 days' notice of changes to pricing or terms.

Before you sign, ask four questions: is the rate flat or on a reducing balance, is any payment linked to a foreign currency, who holds the logbook and when you get it, and is the lender licensed or registered with the Central Bank? Keep every receipt and written notice. Those are the documents MPs say they will examine, and the ones that will matter if a dispute ever reaches a regulator.