Succeed Capital Limited advanced KES 120,000 to Mr Rei-Iman, the borrower, in two instalments in March 2020. The borrower repaid KES 103,250, but subsequently defaulted. The lender claimed KES 172,250, the bulk of which the borrower contended was accrued interest on terms that were unclear on the face of the loan agreement. The Small Claims Court entered judgment in favour of the lender. On appeal, in Rei-Iman v Succeed Capital Limited(Civil Appeal E1374 of 2024) [2025] KEHC 19316 (KLR) (17 December 2025), the High Court overturned that decision.
At a glance
- In Rei-Iman v Succeed Capital Limited (Civil Appeal E1374 of 2024) [2025] KEHC 19316 (KLR) (17 December 2025) the High Court held that section 3 of the Banking Act (Cap. 488) requires any person carrying on banking or financial business in Kenya to obtain a licence from the Central Bank of Kenya (CBK).
- As the lender did not have such a licence, the court held that it was conducting illegal lending activities, the lending arrangement was against public policy, and the lender lacked the legal standing and capacity to sue.
- Since the decision, the licensing point has become a live defence, and lenders should expect it to be raised at the outset of recovery proceedings. However, the CBK has not finalised the regulations that would establish the licensing framework.
The High Court held that section 3 of the Banking Act (Cap. 488) (Banking Act) requires any person carrying on banking or financial business in Kenya to obtain a licence from the Central Bank of Kenya (CBK). As the lender did not have such a licence, the court held that the lender was conducting illegal lending activities, the lending arrangement was against public policy, the lender lacked the legal standing and capacity to sue, and the Small Claims Court judgment was therefore invalid.
The High Court, having determined the issue of the lender’s licensing and its effect on the lending arrangement and the lender’s capacity to sue, did not consider the borrower’s alternative arguments concerning the clarity and fairness of the loan terms or the alleged excessive interest rate.
Comment
The High Court did not analyse whether the lender required a licence. Section 3 of the Banking Act does not prohibit lending. It prohibits transacting banking business, financial business or mortgage finance business without a licence, and each of those defined terms is anchored to the acceptance of money on deposit from members of the public.
Since 27 December 2024, the operative restriction on credit-only lending has been section 33S of the Central Bank of Kenya Act (Cap. 491) (CBK Act), which prohibits carrying on non-deposit taking credit business without a CBK licence. Read correctly, that is perhaps where an unlicensed credit provider is now exposed. Neither provision was considered (nor, on these facts, could either have applied to a loan disbursed in 2020).
Illegal conduct does not automatically remove a party’s capacity to sue. Whether a contract is unenforceable for illegality and whether a party may approach the court for determination of a dispute are distinct questions. A party’s alleged non-compliance with a regulatory requirement may give rise to a defence on the merits, but it does not deprive that party of access to the court. A company incorporated under the Companies Act has a separate legal personality and the capacity to sue, and that capacity is not ordinarily forfeited by a regulatory default. The Court of Appeal confirmed this principle in Stichting Rabobank Foundation v Mwangi & another [2026] KECA 1550 (KLR), holding that regulatory non-compliance does not extinguish a company’s juridical personality or preclude it from enforcing its rights before Kenyan courts.
The court treated the loan as unenforceable simply because the lender was unlicensed, without considering whether that outcome was proportionate to the purpose of the licensing regime.
The decision was reached on a first appeal from the Small Claims Court. Section 38(2) of the Small Claims Court Act provides that the High Court’s decision on such an appeal is final, closing the ordinary appeal route in this matter. No evidence was placed before the High Court on the lender’s regulatory status, yet the court treated the lender as unlicensed. When a case raising similar facts comes before the Court of Appeal, whether through a different procedural route or a challenge to section 38(2) itself, that court will have the opportunity to reconsider the reasoning. The decision binds subordinate courts, including the Small Claims Court and the Magistrate’s Court, but is persuasive only, not binding, on other High Court judges. A differently constituted High Court bench would be entitled to depart from it. Until the reasoning is reconsidered at that level or by the Court of Appeal, lenders should expect borrowers to rely on it in recovery proceedings.
Implications
Since the decision, the Small Claims Court has begun applying the Rei-Iman reasoning in other matters. In 2026, the Small Claims Court at Milimani struck out two separate loan recovery claims at the preliminary stage on the basis that the lenders had not demonstrated that they held CBK licences. The licensing point is now a live defence, and lenders should expect it to be raised at the outset of recovery proceedings.
The Small Claims Court has jurisdiction over claims not exceeding KES 1 million. The decision therefore arose in the context of a small consumer loan. However, the reasoning is not confined to that jurisdiction. Borrowers in other courts can raise the licensing point as a preliminary defence. The practical difference is procedural: a lender that loses on the licensing point in recovery proceedings outside the Small Claims Court retains a full right of appeal to the Court of Appeal, where the reasoning can be properly tested.
What this means for private credit
The decision in Rei-Iman turned on the Banking Act, but the more relevant statute for private credit providers today is section 33S of the CBK Act, which came into force on 27 December 2024 and prohibits carrying on non-deposit taking credit business without a CBK licence. The CBK Act defines non-deposit taking credit business broadly to include granting loans or credit facilities to members of the public (whether digitally or otherwise), asset financing, buy-now-pay-later arrangements, pay-as-you-go arrangements, and any other activity the CBK may determine to be non-deposit taking credit business. The only express exclusion is for credit arrangements that are merely incidental to the sale of goods or provision of services.
However, while section 33S creates the licensing obligation, the CBK has not finalised the regulations that would establish the licensing framework. There is at present no process through which a lender can apply for or obtain the licence that the statute contemplates. As a matter of general principle, a party cannot be held in default of a regulatory requirement where the machinery to comply with it has not been put in place. Until the CBK operationalises the licensing regime, the enforceability of section 33S against lenders who would otherwise seek to be licensed remains open to challenge. Lenders will need to reassess their position once the regulations are finalised, which may require licensing or registration.
Practical guidance
Lenders operating in the Kenyan private credit market should take the following steps:
- Assess whether their activities fall within the scope of section 33S of the CBK Act
A lender that grants loans or credit facilities to members of the public, operates an on-lending facility, a buy-now-pay-later programme, a pay-as-you-go programme, an asset finance programme, or any retail credit product falls within the definition of non-deposit taking credit business and will require a licence once the regulatory framework is operational.
- Monitor the CBK’s finalisation of the Non-Deposit Taking Credit Providers Regulations
The regulations will determine the scope of the licensing obligation, the application process, and any transitional arrangements. Lenders should be prepared to act promptly once the framework is in place.
- Seek legal advice on the lender’s specific structure and activities
The interaction between the Banking Act, CBK Act and Microfinance Act is complex, and the regulatory position will depend on the nature, scale and frequency of the lender’s activities in Kenya. A case-by-case assessment is essential.
- Build the litigation file now
Lenders should assemble and preserve the documents that support their position, including the terms on which their capital is deployed, the absence of a CBK licensing process, and any correspondence with the CBK or its advisers. Being prepared to address the objection immediately, rather than seeking time to respond, will reduce the risk of claims being struck out at the preliminary stage.
Conclusion
Rei-Iman does not prohibit private credit in Kenya and, in our view, has not correctly interpreted Kenyan law. However, borrowers are likely to rely on the decision, and the licensing point will increasingly be raised as a preliminary defence. The regulatory framework under section 33S remains incomplete in that the statute requires a licence, but the CBK has not established the process to obtain one. In these circumstances, lenders cannot be faulted for not holding a licence that is not yet available. What they can do is understand where their activities sit under the CBK Act, engage legal counsel to assess their exposure, and ensure they have the documentary record to defend their position when it is challenged.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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