How smartphone deals are leaving Kenyans in costly debts

In an economy where access to digital services is becoming essential for education, employment, business and financial transactions, those least able to afford smartphones are often paying the highest price to acquire them.

Kenya’s expanding digital economy has created an enormous appetite for smartphones—from Nairobi’s informal settlements to local villages in Turkana, young people are seeking devices that allow them to participate in a world increasingly organised around internet connectivity.

But for someone earning from casual labour, selling vegetables or doing occasional domestic work, paying Sh15,000 or more for a smartphone in cash can be impossible. That is where instalment financing comes in.

Under arrangements commonly marketed as Lipa Mdogo Mdogo or Lipa Polepole, a customer makes an initial deposit and then pays the balance through daily, weekly or monthly instalments. Payments may be collected through M-Pesa, with the repayment period commonly extending over several months.

Some providers install software that restricts the phone when payments fall behind. The arrangement allows customers to acquire a device without paying the full price immediately, but the convenience can conceal a substantial financial cost.

The Kenya National Bureau of Statistics’ 2024 FinAccess Household Survey recorded a sharp increase in the use of hire-purchase arrangements popularly known as Lipa Polepole. The number of people reporting use of these services rose from 579,242 in 2021 to 1,751,994 in 2024.

That increase illustrates how instalment financing has become an important route into smartphone ownership. It also raises questions about affordability, transparency and what happens when borrowers’ incomes cannot keep pace with their obligations.

The Kenya Housing Survey 2023/24 found that 11.3 per cent of Kenyans used mobile phones they did not own. Reliance on borrowed or shared devices was 11.8 per cent in urban areas and 11 per cent in rural areas.

The figures reveal a digital divide that cannot be measured by network coverage alone. Having access to a phone does not necessarily mean owning one, and owning a phone does not automatically mean being able to afford the data, electricity and credit needed to use it.

The FinAccess survey also found that 9.9 per cent of Kenyan adults remained financially excluded because of factors including a lack of mobile phones, identity documents or money. Young people in rural areas accounted for 45.5 per cent of this financially excluded population.

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For those struggling to enter the digital economy, a financed smartphone can therefore represent a genuine opportunity. The question is whether the opportunity remains worthwhile when the cost of accessing it consumes money needed for basic necessities. Alphonse Ombeva, a casual labourer in Nairobi, acquired a Samsung Galaxy A12 through a Lipa Polepole arrangement at a vendor shop on River Road in Nairobi in 2023.

He paid an initial deposit of Sh5,000 and was subsequently required to make daily payments of at least Sh99 until he reached the agreed balance of Sh36,649.

By the time he completed the arrangement, the amount he had paid towards the phone was substantially higher than its cash-market price, which he estimated at between Sh18,000 and Sh20,000. “The initial payment is not included in the total amount. It is just like giving your money away,” Ombeva said.

His experience illustrates a crucial problem with instalment financing where customers may concentrate on the daily payment while overlooking the total amount required to own the device.

Mary Achieng was referred to the same vendor in October 2023 by Ombeva to acquire a Samsung Galaxy A15. She was requested to pay a Sh6,500 deposit and was required to make daily payments of at least Sh32.

The targeted total was Sh43,344, compared with an estimated cash price of between Sh18,000 and Sh22,000.

Phone disabled

By mid-January 2025, the account still had an outstanding balance of Sh7,044. She had missed payments for 1 day, and the phone had been disabled.

“When I defaulted on the phone payment on the due date, the device was disabled, cutting me off from all forms of communication. The gadget that was supposed to make life easier became inaccessible at a time when I was already struggling to meet my financial obligations,” she said.

For a low-income household, losing access to a phone can have consequences including interrupting communication with employers, customers, schools, relatives and lenders. If the device is also used to access mobile money or conduct business, the consequences can be even more severe.

Achieng’s experience also highlights how missed payments can turn a temporary shortage of cash into a much larger problem. The customer loses the immediate use of the device while the money already paid remains committed to the financing arrangement.

“With some financed phones, a missed instalment triggers a remote restriction that prevents normal use. Repeated defaults may also affect a borrower’s credit record, depending on the provider’s terms and applicable reporting arrangements,” she adds.

For someone whose livelihood depends on the phone, the threat of losing access can create additional pressure to borrow, even when the next loan is financially unwise.

Consider Mary Muthoni, a trader who sells tomatoes, onions and vegetables at Githunguri market in Kiambu. Her daily earnings must cover household food, transport, school expenses and the cost of replenishing her stock. A smartphone would help her communicate with suppliers, receive payments and advertise produce to customers. But she cannot afford to buy one outright; rather, she accepts an instalment plan, pays the deposit and takes the phone home.

“At first, the daily repayment appears manageable. The trouble begins when the market is slow, crops fail or a family member falls ill,” she said.

Her income does not arrive on a fixed date, but the instalment obligation remains constant.

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To avoid having the phone locked, she may borrow a small amount through a mobile lending application. That loan settles the immediate instalment, but it creates another repayment obligation, often with fees or interest.

Her circumstances, however, reflect the pressures facing low-income households that depend on irregular earnings while managing fixed repayment commitments. The mismatch between unpredictable income and obligations that must be met, regardless of whether the day’s business succeeds.

James Maina, a college student, says a smartphone can be indispensable since educational materials are shared digitally, and communication with classmates and lecturers increasingly takes place through messaging platforms.

“Some acquire phones through instalment plans because they cannot afford the cash price. Others borrow through digital lending applications to pay for food, transport, rent, educational expenses or emergencies,” he said.

The Old Mutual Financial Wellness Monitor 2025 paints a troubling picture of this broader borrowing culture. According to the report, 40 per cent of respondents took loans to cover everyday expenses, while 25 per cent borrowed to purchase business stock or equipment.

Younger adults aged 20 to 29 were particularly likely to borrow for daily living expenses.

The findings suggest that borrowing is increasingly filling the gap between what households earn and what they need to spend.

“For young borrowers without stable employment, a phone instalment can become one more fixed obligation in an otherwise uncertain budget,” John Muraguri, an economist and researcher, said.

He said for many students, borrowing decisions are shaped not only by financial need but also by the terms offered, the behaviour of peers and the perceived importance of owning a phone.

“The financial strain does not end when a borrower finally acquires a smartphone. In many cases, the phone becomes the instrument through which the next debt is obtained,” he added.

Wycliffe Mutiso, a bodaboda rider from Tala, says mobile lending applications have made it possible for eligible customers to apply for small loans without visiting a bank or providing conventional collateral.

“For people excluded from traditional credit markets, this can be a valuable source of emergency funds. I used mobile apps to borrow money to repay my motorcycle when the lender was on my neck,” he said.

Digital loans

Geofrey Mumo, an economic expert, said more than half of Kenyans rely on digital loans to meet emergency financial needs.

“Nearly one in four people cannot sustain their current lifestyle for more than a month if their income stopped,” he said. This points to a precarious financial environment in which households increasingly rely on credit to maintain everyday life.

“For a borrower already paying for a smartphone in daily instalments, a mobile loan may appear to offer a solution when money runs out. But the loan has to be repaid, often before the next instalment is due,” he added.

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Annastasia Muremi, an accountant in Nairobi, said if the borrower has no additional income, repayment may require another loan.

“The cycle can continue until much of the person’s earnings are committed before the money is even received. Credit used repeatedly to purchase food or meet an instalment, without a realistic plan for replenishing the money, can deepen financial vulnerability,” she said.

Maxwell Igunza, an economist, argues that hire-purchase arrangements must be assessed against the financial circumstances of the people using them.

He recognises that the plans offer a route to smartphone ownership for low-income earners who cannot meet the full cost upfront. But that access comes with a trade-off.

He warns that instalment financing does not automatically improve a household’s financial position.

“The risk is that it does not help you map out your average consumption and expenditure. It tends to distort you because you consume today and pay more for a longer time. That is not the best financial habit to adopt,” he adds.

The concern is that borrowers can become accustomed to committing future income to purchases made today. When several such commitments overlap, it becomes increasingly difficult to determine how much money is genuinely available for food, housing, transport and savings.

Igunza acknowledges that providers also face risks when customers default. Lenders must account for the possibility that some borrowers will fail to complete payments and those risks can influence pricing. But the broader question remains whether the financing arrangement is fair and affordable for the customer. “Yes, it leads to more people having phones, accessing digital products and financial services... but at what cost?” he asks.

Ogutu argues that addressing the underlying affordability problem would provide a more sustainable route to financial inclusion than simply expanding access to expensive financing.

His concern is echoed by financial wellness experts who say credit should support a person’s progress rather than become a permanent substitute for sufficient income.

During a panel discussion on the Old Mutual report, Dr Tabitha Njuguna of Strathmore University Business School observed that Kenyans were becoming more deliberate about their financial futures.

“What we are seeing is a shift from passive financial behaviour to active financial intent. Kenyans are working harder and setting goals, but they need the right tools, advice and protection to translate this resilience into long-term financial security,” she said.

Formal financial access reached 84.8 per cent of Kenyan adults in 2024, according to FinAccess. Digital services have helped extend access to payments and other financial products beyond the traditional banking system.

The Central Bank of Kenya introduced regulations for digital credit providers in 2022 amid concerns about high costs, unethical debt collection and misuse of personal information.

Nevertheless, borrowers still need to understand what they are signing up for, and providers must communicate their terms clearly.