Effect of Digital Lending Uptake, Regulatory Framework and Financial Stability of Nonbank Financial Institutions (NBFIs) in Kenya

This research investigated the effect of digital lending adoption, the regulatory framework, and the financial stability of nonbank financial institutions (NBFIs) in Kenya. The regulatory framework mediates the relationship between digital lending adoption and financial stability. This study is based on two theories: The Technological Acceptance Model (TAM), which identifies factors influencing digital lending acceptance, and Public Interest Theory, which emphasizes regulation's role in correcting market inefficiencies and preventing exploitation. A comprehensive desktop review using Google Scholar and Boolean operators was conducted to gather relevant literature for this analysis. Findings suggest that digital lending does not inherently destabilize financial systems; rather, it has prompted regulatory improvements that protect consumers and maintain market integrity. A strong regulatory framework is crucial for ensuring financial stability and allowing non-bank lenders to operate safely. The Central Bank of Kenya’s 2021 Digital Credit Providers Regulations have played a significant role in risk mitigation. Effective regulations are necessary to balance financial innovation with risk management. Policymakers should enhance regulations to support this balance, and future research should explore the long-term sustainability of digital lending models.