How to Start a Private Lending Business in Kenya.

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You must have found yourself, in some instances, in a situation where you urgently needed money in the form of a loan.

At that moment, you could not go to your bank because maybe you have an existing loan, had defaulted on a loan, and on an extreme case, had been listed on CRB.

Having been listed on CRB meant that you could also not contact any other financial institution, leave alone your bank, for any loan.

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Mobile lenders and Apps could also not assist because you are still listed on CRB.

I am still curious to know how you went about such a tricky situation.

You see that same situation you were in on that day? That is the same situation most Kenyans find themselves in when they need loans. 

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Interestingly, the only way you can overcome this financial need is to have someone willing to lend you money without considering your credit history.

Because let’s face it if no financial institution is willing to lend you money in Kenya, who can? Of course a shylock!

You’ll however need collateral like maybe your TV, fridge, or microwave…anything that has monetary value to get these loans.

This is what is called Private Lending Business.

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This business has so thrived in Kenya that it is now among the most profitable businesses in Kenya in 2024.

If you have a large sum of money lying in your bank as deposits, you can start a Private Lending Business to gain interest in it.

There are deep facts that you will need to understand about this business though. That’s because there is a grey area around it.

One of those grey areas is the question of if private lending (shylock business) is legal. Let us carry on and find out.

How to Start a Private Lending Business in Kenya (Location).

The most pressing financial needs that may require the intervention of a Private Lender are not back at the reserves.

They are here in town, where everything is pegged on your financial capability except the air you breathe.

Your Private Lending Business will thrive better in the city or an urban setting than the rural areas.

Private Lending Business Kenya (Requirements).

Here come the very things that are mandatory for success in the Private Lending Business:-

  1. Identify the need for private lending – don’t just go ahead lending money to people who might as well not have needed your intervention. This is business and you need to first identify an exploitable gap. People will always have financial needs anyway.
  2. Have an existing business – you might not have enough money to start a microfinance institution. You need to know well that anything less than a microfinance institution is not recognized by the law. What you need to thrive is therefore a different existing business like an electronics business, repair works, or just any other registered business. It is from there that you will be operating and running your private lending business undercover.
  3. Draft contract forms – in as much as any lending below the microfinance level is not recognized by the law, signed contracts are very recognizable by the same law. You only need someone to sign a contract form and you can sue them in a court of law and you will still be safe, not unless it is found out that you forged a document for fraud. Do not forge signatures – let your clients sign the contract forms themselves. Contract forms are the only thing that makes the agreement between you and the borrower binding and legal.
  4. Determine interest rates and the maximum amount you can lend – you need to determine how much you will charge on your borrowed money in terms of what duration. Most people doing private lending offer loans at 10-15% daily. Depending on your unique circumstances and the market conditions also, determine the rate at which you will charge interest. You also need to determine how much your limit is, depending on how much you have to offer.
  5. Determine valid collaterals – any client you lend money to is a potential defaulter, no matter how much you trust them. You will need collateral when they borrow money, which you will retain or sell if they default, or return to them after they pay back the loan and interest. You need to determine which collaterals you will take, which may as well be in line with your existing business like electronics if you are running an electronics shop. The collateral you take must be of much more worth than the amount the client is seeking to borrow, to ensure you are protected in case they default.
  6. Market your private lending business – you had already identified a market gap and knew that most people would need your private lending services. By word of mouth, social media, or any other local means, send word that you are offering such services. Let potential clients know that they can come to you when they need the service next.

Recap:

  • Let clients know that they’ll need collateral of much more worth than the amount they are seeking.
  • Ensure clients sign the contract forms themselves.
  • Ensure clients understand the terms of your service.
  • Test all collaterals to ensure they are in good working condition and not faulty before handing in the cash to the client.
  • Let all clients prove ownership of the item they bring as collateral (can provide receipts) to avoid the possibility of having been stolen.
  • As you start, remain local to avoid much drama.

How much capital do you need to start a private lending business in Kenya?

You are already running a different business.

If you have about Ksh.250,000 – Ksh.500,000 more lying in your bank deposit accounts, you have enough to venture into private lending.

How profitable is a private lending business in Kenya?

If you lend out your Ksh.250,000 – Ksh.500,000 for 30 days with 15% daily interest, then at the end of the month you expect Ksh.1,125,000 – Ksh.2,250,000. Your money grew by a whole 450%.

Even if you don’t lend out the whole amount, whatever amount you lend will grow by 450% at the end of the month. Where else do you earn 450% on your money, if not in private lending?

Final Word.

Private lending is one of the most lucrative ventures in Kenya today.

If you do it right, you will smile at the bank. If you have extra money to spare, join the club, pay the price, and make your billions.

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