Over the past decade, digital credit has dramatically transformed financial ecosystems across the world. In developed markets, Buy Now, Pay Later (BNPL) platforms like Klarna, Affirm, Afterpay, and China’s Alipay have made short-term lending seamless for consumers. Globally, the BNPL market is expected to exceed US $3.9 trillion, with widespread adoption across retail, e-commerce, and financial services.

This new credit paradigm has enabled millions to access financing without the bureaucracy of traditional banks. It has also introduced a new category of borrowers into the global credit economy, particularly the youth and informal entrepreneurs. However, this financial innovation carries inherent risks: overspending, under-regulation, data misuse, and growing debt burdens. As these platforms expand into emerging markets, the call for tighter controls and proactive oversight becomes increasingly urgent.

Africa is at the centre of this digital credit explosion. The continent’s BNPL market was valued at approximately US $4.5 billion in 2023 and is projected to reach over US $10.6 billion by 2030, growing at an annual rate of nearly 15 percent. Across the broader Middle East and Africa region, BNPL and mobile credit are expected to hit a combined value of US $15.5 billion in 2024, with forecasts suggesting it could double to US $32.6 billion by 2029.

In Nigeria, BNPL transactions are expected to grow from US $1.4 billion in 2021 to US $2.6 billion by 2030. South Africa’s BNPL market, meanwhile, is projected to reach US $5.7 billion by 2027. Kenya, Ghana, and Egypt are also witnessing rapid BNPL adoption, largely driven by fintech startups offering smartphone-based microloans.

The adoption is not limited to formal institutions. As of 2024, Nigeria alone had over 400 licensed digital lenders, with many more operating informally. These apps offer short-term, collateral-free loans to millions, often with little or no credit checks, making them both popular and perilous.

The appeal of digital credit lies in its accessibility. With just a smartphone, a mobile user in Nairobi or Lagos can access quick loans ranging from as little as US $10 to US $100, approved almost instantly based on alternative data such as mobile usage patterns or social media activity.

This convenience, however, comes at a cost. Interest rates are often exorbitant, with penalties for late repayments far exceeding conventional bank terms. Youth and informal traders, who make up the bulk of users, are especially vulnerable. Many fall into cycles of borrowing to repay previous loans, leading to digital debt traps.

While some studies have shown that short-term digital credit can boost subjective well-being in the immediate term, the long-term effects on household resilience, savings habits, and mental health remain concerning. Borrowers frequently report stress, harassment from lenders, and loss of digital assets such as smartphones due to default penalties.

One of the most prominent examples is M-Kopa, a fintech company that began in Kenya offering pay-as-you-go solar kits. Today, it has expanded to provide smartphones, digital loans, and asset financing across Kenya, Nigeria, and Uganda. By mid-2024, M-Kopa had disbursed over US $1.5 billion in credit to more than five million users. While it is widely praised for driving inclusion, critics caution that its model can lead to over-borrowing, especially as repayment defaults trigger repossession of financed smartphones.

In Nigeria, PalmPay has become one of the largest mobile financial platforms, serving over 35 million users, including more than one million SMEs. Backed by significant foreign investment, the company has expanded its services to include BNPL, insurance, and SME lending. However, regulators have raised concerns about the practices of some third-party lending apps associated with the platform, prompting greater scrutiny by Nigeria’s Federal Competition and Consumer Protection Commission.

Traditional banks across Africa now find themselves under pressure from digital-first lenders. These platforms bypass conventional loan procedures, avoiding credit score checks and collateral requirements. While this expands access to credit, it also creates several systemic risks.

First is the issue of credit risk management. Without structured underwriting systems and uniform credit reporting, digital lenders often operate in silos, exposing borrowers to multiple overlapping loans from different platforms. This increases the risk of mass defaults, especially in periods of economic instability.

Second is the risk of regulatory arbitrage. In many countries, regulations governing fintech lenders lag behind their innovation. The absence of interest rate caps, unclear licensing procedures, and weak data protection laws enable some digital lenders to engage in exploitative practices, undermining public trust in financial systems.

Third is reputational risk. Even when banks partner with fintechs to expand their services, they may face backlash if those fintechs are implicated in consumer abuse or data breaches. Maintaining credibility in such partnerships requires banks to proactively engage in due diligence and insist on transparent, consumer-centric practices.

Africa cannot afford to halt the digital credit revolution, it is an important lever for inclusion, especially among unbanked populations. However, it must be managed with foresight, discipline, and collaboration across sectors. Several pillars are essential:

Central banks must ensure that all digital credit providers, whether BNPL platforms, mobile lenders, or app-based services—are registered, monitored, and required to report loan activity to national credit bureaus.

Regulatory frameworks should mandate income-based lending caps and require platforms to conduct basic affordability checks before issuing loans. Kenya’s regulatory overhaul in 2023 offers an emerging model for balancing innovation with oversight.

Governments, civil society groups, and fintech associations should invest in public awareness campaigns to educate consumers on the risks and responsibilities of digital credit. This is especially vital for youth, informal workers, and first-time borrowers.

Instead of viewing fintech as competition, banks should explore partnerships that align innovation with financial stewardship. Such collaborations could enable traditional lenders to serve new markets without diluting their governance standards.

The integration of artificial intelligence in risk scoring and fraud detection can support responsible lending. However, AI use must be accompanied by strong data privacy laws and mechanisms for consumer redress.

The expansion of digital credit should also be aligned with global financial inclusion frameworks. The G20 High-Level Principles for Digital Financial Inclusion and the World Bank’s Universal Financial Access 2020 initiative both stress the need for consumer protection, responsible innovation, and inclusive regulation.

Moreover, the Financial Action Task Force (FATF) has provided guidelines on anti-money laundering and counter-terrorism financing that apply to digital financial services. African regulators must ensure that their domestic frameworks reflect these global standards while adapting them to local contexts.

At the continental level, the African Union’s Digital Transformation Strategy for Africa (2020–2030) provides a roadmap for leveraging digital technologies to drive inclusive growth. This strategy recognises digital credit as a critical component—but emphasises the need for data governance, ethical AI, and regional harmonisation of financial standards.

The rise of digital credit in Africa represents both promise and peril. It has unlocked access to finance for millions who were previously excluded from the formal economy. It has supported small businesses, empowered women, and provided a pathway to asset ownership for low-income families.

But without strong guardrails—regulation, education, transparency, and collaboration, the very innovation that empowers can also exploit. Digital credit must be approached not as a silver bullet, but as a powerful tool that requires careful handling. African leaders, regulators, fintech innovators, and consumers all have a role to play in shaping a future where access to credit uplifts, rather than burdens, the continent.

By anchoring its digital credit systems within robust policy frameworks and drawing lessons from global experiences, Africa can build a financial ecosystem that is inclusive, resilient, and sustainable.