This investigation reveals a system where corporate self-interest prevails over public interest, where borrowers are reduced to mere revenue units, and regulatory institutions have abdicated their responsibilities. It is a damning indictment of a financial sector lauded for its innovation, yet complicit in quietly bleeding the very businesses and households it claims to serve.

This is Part One, outlining how lenders have rigged the system against borrowers, normalised anti-competitive practices, and exploited regulatory inertia to transform insurance premiums into covert financial extractions.

In Part Two, we’ll unpack the specific legal and policy failures that have enabled this scandal to flourish. We will trace the legislative loopholes, dissect the silence from Parliament, and investigate why, despite their promise, competition, consumer protection, and financial laws have failed to deliver justice to Kenyan borrowers. Most importantly, we will outline the reforms the country should undertake to dismantle this financial racket and restore fairness to its credit markets.

Insured Monopolies? How Kenyan Lenders Are Bleeding Borrowers Through Forced Insurance

When John Mwenda (not his real name) walked into his bank on an overcast Tuesday afternoon, he had no reason to expect anything out of the ordinary. His logistics business had picked up a string of lucrative contracts ferrying cargo between Nairobi and Mombasa. With a backlog of payments stuck in client systems, all he needed was a short-term overdraft to keep his fleet moving. It was meant to be a straightforward transaction: numbers checked, collateral assessed, facility approved. What he did not expect was what would follow.

The loans officer, in a tone that left no room for negotiation, informed him that before his facility could be processed, he would have to take out insurance cover from a “bank-appointed provider.” It wasn’t a suggestion. The cover was mandatory, a non-negotiable attachment to the overdraft. Curious and cautious in equal measure, John sought a comparative quote from his family’s long-time insurer. The difference was staggering: the bank’s preferred policy was 42 per cent higher for the same risk cover.

When he asked to use his insurer, as is his right, the response was blunt. “No. That’s our policy.”

It was one of those moments where business pragmatism collides head-on with principle. Should he sign and bear the inflated cost, or walk away and jeopardise his contract delivery deadlines? Like thousands of borrowers in Kenya each year, John signed. Not because he agreed, but because, arguably, the country’s financial sector, desperation routinely outruns choice.

And herein lies a problem larger than John’s, one that extends beyond any single bank or insurer. It is a systemwide financial racket hiding in plain sight, one that has quietly morphed into a market rigging scheme, entrenching anti-competitive practices under the veneer of prudent risk management.

The practice is alarmingly simple. Financial Institutions and digital lenders, leveraging their gatekeeping control over credit, have turned insurance referrals into compulsory sales. Want a loan? Then you must take up an insurance policy from one of our “panel” insurers. Decline, and you’re denied the facility. Premium pricing is rarely competitive, and the borrower’s right to select a cover of their choice is stripped away. Most borrowers, unaware of their legal entitlements or unwilling to jeopardise vital financing, acquiesce.

What appears at face value as an operational convenience is, in legal terms, a clear violation of the country’s regulatory framework on competition and consumer protection.

Article 46 of the Constitution guarantees every consumer the right to goods and services of reasonable quality; the right to information necessary to derive full benefit from those goods and services; the right to protection of their health, safety, and economic interests; and the right to compensation for loss or injury arising from defects in goods or services.

Section 21 of the Competition Act expressly prohibits any practice that directly or indirectly fixes trading conditions or restricts market access. Tied selling, where a borrower is compelled to purchase one product (insurance) as a precondition for accessing another (credit), fits this definition precisely. Similar practices have been struck down in courts elsewhere for a long time. In Canada’s Trebilcock v Royal Trust Co (1977), the courts unequivocally ruled that any bundling of financial products, done without genuine consumer choice, amounted to an illegal trade practice.

The enforcement, however, has been lethargic at best and complicit at worst. Regulatory agencies, such as the Competition Authority of Kenya (CAK), the Central Bank of Kenya (CBK), and the Insurance Regulatory Authority (IRA), possess statutory powers to intervene but have, so far, chosen not to exercise them. Even when CAK’s inquiries flagged anti-competitive conduct within the insurance market, no decisive sanctions followed. Meanwhile, CBK’s guidelines against exploitative credit practices and IRA’s supervision of market conduct have proven toothless, enabling Financial Institutions to continue extracting inflated premiums from hapless borrowers.

The human cost of this arrangement is devastating. Small and Medium Enterprises (SMEs) account for over 80 per cent of Kenya’s employment and 30 per cent of GDP. Therefore, every extra shilling siphoned away through compulsory, overpriced insurance is money diverted from wages, working capital, and business expansion. It’s an invisible tax on enterprise, levied not by government but by powerful corporate actors, unchecked by institutions mandated to protect the public interest.

The practice has metastasised further within the country’s booming digital lending sector, where opacity reigns supreme. Digital lenders, many of which operate via mobile apps, deduct what they claim are “insurance” or “risk fees” upfront from the disbursed loan amounts. The borrower is rarely informed who the underwriter is, what the cover entails, or how to file a claim. In most cases, no actual insurance contract exists. These deductions are often a thinly disguised surcharge. They are predatory and unchecked by law. Borrowers are routinely left paying for phantom cover.

The Consumer Protection Act, 2012, provides, in principle, a safeguard against such unfair trade practices, guaranteeing the right to fair, honest, and competitive market conduct. In practice, however, enforcement has been patchy. Legal remedies exist. Consumers can petition under Article 46 of the Constitution, file complaints with CAK, or pursue constitutional litigation. But litigation is prohibitively expensive, protracted, and bureaucratically exhausting. Lenders, well aware of this, have continued to exploit the gap, calculating, often correctly, that most borrowers would rather accept the cost than risk litigation or lost financing.

Meanwhile, the economic rationale behind this tying arrangement is as old as capitalism itself: profit. Financial Institutions and financial lenders earn commissions from the premiums they channel to preferred insurers. In some cases, the underwriters are subsidiaries or affiliated firms of the lender, ensuring that the insurance revenue flows back into the lender’s ecosystem. Empirical data suggests that financial institutions can earn up to 25 per cent of gross premium value on these policies. The borrower’s choice is denied not for risk management, but for revenue optimisation.

The consequences go beyond overpricing. Artificially inflating premium prices and restricting consumer choice distort the competitive dynamics of Kenya’s insurance sector. Insurers not aligned with banking institutions find themselves locked out of the lucrative credit-linked insurance segment. This exclusion stifles price competition and disincentivises product innovation, harming consumers and undermining the promise of financial inclusion.

Internationally, this practice would be scandalous. In South Africa, regulators moved swiftly against similar credit insurance abuses in 2017, outlawing compulsory bundling of insurance products without express, uncoerced consumer consent. The UK’s Financial Conduct Authority (FCA) has long prohibited lenders from making insurance a mandatory credit condition, imposing multi-million-pound fines on those who violate this rule.

In Kenya, no such reckoning has occurred. That reckoning, however, is overdue, because what is at stake here isn’t just the price of an overdraft; it’s the integrity of the country’s financial system and the plight of consumers.