Bridging the Gap: The Rise of Digital Lending Platforms in East Africa
Buy Now, Pay Later (BNPL) platforms have transformed global shopping, expenditure and credit access patterns. In East Africa, the impact of these platforms is most clearly illustrated by the purchasing power they have unlocked: from financing the purchase of modern-day essentials like airtime and smartphones to enabling the acquisition of solar panels and electric bikes. With an increasingly tech-savvy, youthful population and a robust mobile money infrastructure to build on, the regional boom in digital lending services may have just begun.
However, bridging the gap comes with a cost. High default rates and delinquencies as well as the time lag between innovation and regulation remain critical challenges to digital credit in East Africa. As access to lending in this traditionally unbanked and underbanked region evolves, one question remains; Can payment plans really be the key to unlocking economic prosperity?
How Buy Now, Pay Later Works
Fundamentally, BNPL platforms enable users to acquire goods by providing the option to pay for them in instalments over a set period of time. By spreading the cost of a purchase, this flexible approach to payment makes products more affordable for consumers. This article will focus on two approaches of Business to Consumer (B2C) BNPL systems: Zero-interest payments and Interest-bearing payments.
Zero-interest payments allow users to break down the total price of a product into smaller, equal payments with no extra interest charges. For example, a product that is bought for 10,000 KSh, can be paid off in bi-weekly 2,500 KSh payments spread over six weeks. Typically, the first of these payments will be made at checkout, although some platforms allow their users to defer the entire payment by 30 days without an upfront payment. This is useful for customers seeking to test or check out a product before they pay for it. It must be noted that if a user is late with their payments, they are subjected to charges. For instance, Klarna – a well-known Swedish BNPL platform – offers a 10-day grace period to those who have missed a payment, along with several reminders. If the payment is still pending after the grace period, the app applies a $7 late payment fee to the next instalment.
On the other hand, interest-bearing payments allow customers to spread their payments over time, but at a cost. It is more akin to traditional consumer credit products such as credit cards and point of sale financing. Generally, users make their payments monthly, and this model enables customers to make bigger purchases. For example, PayPal introduced a BNPL instalment produced called Pay Monthly in 2022. Consumers may utilise the service for payments up to $10,000 and are offered payment plans ranging from 3 up to 24 months. Although, there are no sign up or late fees, annual interest rates are between 9.99% and 35.99%.
While zero-interest payment models are the more traditional form of BNPL platforms, the interest-bearing models are becoming increasingly popular. According to Standard and Poor’s (S&P) , higher interest rates in the post-pandemic world have raised the cost of capital and eaten into the margins of interest-free BNPL products. These platforms’ pivot to interest-bearing loans aims to take advantage of higher rates and generate interest income. This move has blurred the lines between BNPL platforms and traditional credit as the former shifts away from relying on fees paid by merchants.
The East African BNPL Ecosystem
Digital lending in East Africa is characterised by a diverse number of models and intermediaries such as mobile network operators, smaller FinTech companies and online retailers. The ubiquity of mobile phones and mobile money networks, as well as the expansion of 4G and 5G networks, has paved the way for digital financial services such as BNPL platforms.
Consequently, East Africa’s telecommunication sector is the foundation of the region’s digital credit industry. They include Safaricom, Airtel and MTN as well as their accompanying mobile money networks, namely: M-PESA, Airtel Money and MOMO – MTN Mobile Money. These firms have all introduced BNPL models for their users regarding airtime and data. These services include: Safaricom’s Okoa Jahazi and MTN Uganda’s XtraTime. Similarly, Airtel offers Beerako and Timiza in Uganda and Tanzania, respectively. For example, Airtel Uganda’s Beerako charges qualified users 11% of the amount they borrow. This amount is recovered the next time a customer tops up either their airtime or mobile money.
Additionally, through their mobile money networks, these companies have begun to extend credit to their customers. Safaricom extends credit to customers through their Fuliza overdraft service. To qualify, customers must have been active on the network for at least 6 months and can grow their limit by using Safaricom services. Failure to pay back the loan in 30 days results in negative listing at Credit Rating Bureaus in Kenya. This has the potential to affect users’ chances of accessing other credit services. According to Safaricom, Fuliza boasted 7.5 million subscribers for the 23/24 financial year with users borrowing at least KSh 2.3 billion – about $17.8m – everyday.
On the other hand, FinTech is playing an increasingly important role in East Africa’s digital credit industry. The largest of these is M-KOPA, a UK-based fintech company operating in Uganda, Kenya, South Africa, Ghana and Nigeria. The firm’s financial platform serves over 5 million users and has distributed over $1.5b since the company was founded in 2010.
To achieve this impact, M-KOPA operates with a vertically integrated business model, assembling smartphones in East Africa’s first and only smartphone refurbishment facility in Nairobi – assembling over 1 million smartphones a year. The company then exposes users to their Smart Money platform through these devices as customers can finance the purchase of their smartphone and gain access to the digital economy. Subsequently, users can access payment plans for other products, all payable on their smartphone through M-PESA.
Furthermore, M-KOPA’s subsidiaries, M-KOPA Mobile and M-KOPA Solar, have fuelled demand for electric bikes as well as solar panels. The company has become the biggest financier of electric vehicles and bikes in Kenya, financing two out of every three electric bikes sold. According to Kenyan electric bike manufacturer, Roam, 90% of their bikes are financed by M-KOPA. This is followed by a partnership with Bolt, with M-KOPA assisting 5,000 riders with accessing Bolt’s platform.
Similarly, M-KOPA Solar has sold over 1 million solar systems to customers in Kenya, Nigeria and Uganda. The company’s system includes lights, a mobile phone charging-port, a solar powered radio and some models even come with a solar-powered digital television (TV).There are now over 100,000 of these TVs in circulation, all of which are powered using solar panels.
A Cautionary Tale
Lipa Later, which was founded in Nairobi in 2018,sought to provide credit to African consumers and Small and medium sized enterprises (SMEs)and create an e-commerce platform. This model allowed users to access both essential and aspirational goods whilst generating revenue from transaction fees and interest payments. It proved popular and quickly spread to Rwanda and Uganda.
However, Lipa Later’s trouble begun in December 2023 after acquiring Sky Garden, a struggling Kenyan e-commerce platform, for KSh 250m – equivalent to $1.9m. This left the business short of cash with reports emerging of unpaid employees and suppliers with legal challenges thereafter. Despite raising $10m in a funding round at the end of 2024, Lipa Later was placed under administration on March 24th 2025. The company’s future remains uncertain.
In spite of the tremendous potential Africa’s fintech sector, BNPL platforms in the region largely face the same risks as traditional lenders. While innovative, these companies possess higher risk lending portfolios. According to the Central Bank of Kenya (CBK), 65% of credit holders in Kenya defaulted on their loans in 2021. Additionally, FinTechs may be incentivised to loosen their credit standards and maximise their loan volume in order to maximise the fees they collect. Together with exorbitant interest rates, start-ups may pull such levers to achieve profitability or meet revenue targets. While appeasing investors, this would leave users with high interest debt, late fees and the risk of being blacklisted from accessing credit.
Conclusion
As digital lending platforms continue to evolve in East Africa, their ability to bridge financial gaps and empower the unbanked cannot be denied. For many, BNPL offers a lifeline – an opportunity to own a smartphone, power a home, or even earn a living through mobility and gig work. Yet, the same tools that promise progress can also push users into cycles of debt, especially when high interest rates, opaque terms, and delayed payments collide. In a region where many live hand-to-mouth, the appeal of spreading out payments can be as much about survival as it is about convenience. Making ends meet often means betting on tomorrow’s income to pay for today’s essentials. The challenge, then, is balance – ensuring innovation doesn’t outpace responsibility. As BNPL becomes a cornerstone of East Africa’s fintech landscape, the future will depend not just on access, but on accountability, education, and safeguarding the financial well-being of those it seeks to serve.
