The Impact of Predatory Lending on Household Financial Health in Kenya

Predatory lending has emerged as a significant challenge within Kenya’s rapidly expanding informal and digital credit markets. While these markets enhance credit accessibility, particularly for low-income households and informal sector workers, they are increasingly characterized by exploitative practices such as excessive interest rates, opaque terms, and coercive recovery mechanisms. This study investigates the impact of predatory lending on household financial health in Kenya using a sequential explanatory mixed-methods approach. Quantitative data were obtained from a cross-sectional survey of 400 households across five counties, while qualitative insights were drawn from in-depth interviews with 20 purposively selected participants. The findings reveal that households exposed to predatory lending experience significantly higher debt-to-income ratios, elevated loan default rates, increased incidences of asset liquidation, and frequent disruptions in meeting essential needs such as healthcare, education, and food. Qualitative analysis further highlights the psychological and social consequences of exploitative borrowing, including stress, stigma, and deteriorating household cohesion. These results suggest that predatory lending not only erodes household economic stability but also threatens Kenya’s financial inclusion objectives. The study recommends enhanced regulation, expansion of ethical credit alternatives, increased financial literacy, and stronger consumer protection measures to address this growing financial and social risk