Visa Flags Underwriting Gap In Kenya’s Credit Market

Kenya’s unsecured credit market is splitting into two distinct tracks, and traditional banks are on the slower one, according to new research from Visa Consulting & Analytics (VCA).

The whitepaper, titled “Winning Kenya’s Next Unsecured Credit Wave: Closing the Underwriting Gap Between Digital and Traditional Bank Lending,” examines underwriting — the risk-assessment process lenders use to decide who qualifies for credit and on what terms — and maps out how roughly 18 million Kenyans now have access to formal credit, in a market that has split into two parallel systems serving increasingly overlapping customer needs. Banks continue to hold their ground in higher-value, longer-term products such as personal loans and mortgages, while digital lenders have carved out dominance in short-term, small-ticket borrowing built around instant approvals, mobile-first design, and fully automated decisioning.

More than 150 licensed digital credit providers are now active in the country, and both the number of digital borrowers and the total value of digital lending are growing at close to 40 percent a year. That pace, VCA argues, is steadily pulling everyday borrowing and mobile money activity away from banks, even where those same banks still hold the customer’s primary deposit account.

Sandy Samaan, Vice President and Head of Visa Consulting and Analytics for Sub-Saharan Africa, frames the shift as a widening expectations gap. “Kenya has one of Africa’s most dynamic credit markets, but the way credit is assessed and delivered is changing rapidly,” she said. “Consumers increasingly expect fast, seamless access to credit based on real-time data and digital experiences. Financial institutions that invest now in modern underwriting capabilities will be better positioned to grow responsibly, improve customer outcomes, and remain competitive in an increasingly digital marketplace.”

The report’s underwriting maturity assessment traces the divergence back to three structural gaps:

The first is data Utilisation: banks sit on extensive customer information spanning products, channels, and behavior, but VCA finds that data is often fragmented and only partially built into lending decisions, whereas digital lenders put real-time behavioral and transaction data at the center of how they assess risk.

Advanced Analytics. Many banks are still working off traditional scorecards and static risk acceptance criteria, which limits how precisely they can price risk or evaluate thin-file customers, while digital lenders are already deploying machine learning models trained on recent transaction and behavioral data.

Automated decision. Much of banks’ unsecured lending is still processed manually, which slows turnaround, while digital lenders run automated decisioning engines capable of straight-through processing and near-instant disbursement within set risk limits.

Closing those gaps, according to the whitepaper, will take more than incremental fixes. VCA’s recommended roadmap centers on three priorities: pulling in data sources beyond conventional credit bureau information, including transaction behavior and merchant interaction patterns; building next-generation risk models using machine learning to better serve thin-file and mass-market segments; and re-engineering credit approval processes end-to-end, from initial risk assessment through disbursement, so that decisioning can happen automatically without losing risk discipline.

Samaan argues the underlying advantages banks hold have not disappeared, only that they are no longer sufficient on their own. “The opportunity for banks remains significant,” she said. “They retain strong customer relationships, funding advantages, and broad product ecosystems. However, these strengths must be complemented by modern credit capabilities that reflect the speed and complexity of today’s lending environment.”

The whitepaper also flags that the broader lending environment remains under strain, which raises the stakes for getting underwriting right  rather than lowering them. VCA’s own conclusion is blunt: Kenya’s credit market has reached what it calls an inflection point –a critical turning moment where things could go one way or another, and what happens right now determines which way it goes–, and the window for banks to respond to digital lenders’ growth is narrowing.

Institutions that move early on data, analytics, and automated decisioning, the report argues, will be better positioned to protect existing customer relationships and capture the next phase of growth in the sector; those that don’t will face compounding pressure on unsecured lending volumes, profitability, and market relevance.