Kenyans Trapped in Costly ‘Lipa Mdogo Mdogo’ Credit Schemes

Kenyans using the popular “lipa mdogo mdogo” payment model are paying significantly more than market value for goods, with many reporting hidden charges, unclear terms, and unresolved complaints.

University student Lynder Otieno turned to the scheme to access a smartphone for remote learning. After an initial deposit of Sh3,000, she repaid nearly Sh50,000 over two years for a phone worth Sh11,000. Once the loan was cleared, the phone stopped working and could not be repaired. Her attempts to contact the supplier were unsuccessful.

In Mombasa, Ruth Musasya described repeated issues with her repayment records. Her requests for account statements were ignored, leaving her without a clear understanding of her loan status. Another customer, Melvin Olale, was denied the option to settle her loan in full, a restriction she found unjustified.

Boda boda rider Denis Omondi faced a more serious setback. After making nearly all payments for a motorbike, the vehicle was repossessed. His complaint went unanswered until he threatened legal action, after which he was promised a second-hand replacement.

The offer was later withdrawn without explanation. Police in Mombasa say such cases often involve customers from low-income areas who may not fully understand the terms of their agreements. Mombasa Urban police commander Lucas Chelulot said many victims come from informal settlements and rural communities, adding that vendors tend to target individuals with limited financial literacy.

Despite rising complaints, the model remains widespread. With inflation reducing disposable income, many traders have adopted instalment plans to maintain sales. Boutique owner Bahati Mwakoi offers group payment schemes where customers contribute weekly, allowing each participant to collect an item in turn.

Some retailers have chosen not to offer credit, citing concerns over defaults and lack of regulation. Electronics seller Abdulhakim Hamid avoids the model entirely, while trader Anthony Murimi requires full payment before handing over goods and offers partial refunds if buyers drop out.

Financial analysts say the popularity of instalment-based schemes points to deeper economic challenges. Lilian Atieno, a Nairobi-based financial expert, warns that in the absence of proper oversight, consumers are exposed to excessive interest rates, unclear fees, and intrusive tracking features. She calls for stricter regulations to ensure transparency and fair treatment.