Banks urged to move beyond collateral as AI reshapes lending across East Africa

The call dominated discussions at the 23rd East African Banking School (EABS) Conference in Diani, where regulators, lawmakers and banking executives examined how emerging technologies are transforming credit risk management while promoting greater financial inclusion.

Opening the conference, Central Bank of Kenya Governor Dr. Kamau Thugge said AI has the potential to improve lending decisions but cautioned that financial institutions must remain accountable for every credit decision.

"AI models should be transparent, explainable, and subject to effective human oversight, and ultimately the responsibility for credit decisions must continue to rest with banks and not algorithms," Thugge said.

As digital lending continues to grow, Kenya Bankers Association (KBA) Chairman Paul Russo called on banks to adopt technology-driven approaches that provide a more comprehensive assessment of borrowers beyond conventional security requirements.

"Our ambition should be to explore how innovation, technology, artificial intelligence, alternative data and collaboration can help us better understand risk, reduce it and ultimately make more individuals, businesses and communities bankable," Russo said.

Russo maintained that while collateral would remain an important component of lending, it should no longer be the primary determinant of creditworthiness.

"While collateral will always have an important place in lending, it should not become the main decision tool to determine lending," he added.

His remarks were echoed by National Assembly Finance and National Planning Committee Chairperson Kuria Kimani, who warned that continued dependence on collateral risks excluding millions of potential borrowers, particularly young entrepreneurs.

"Your banks, your institutions are still using collateral as the main basis of lending. If you continue like this, you will have no one to lend to. These young people do not have the collateral you seek. You must up your game in data analytics and risk profiling," Kuria said.

Conference participants noted that financial institutions are increasingly incorporating alternative data—including mobile money transactions, digital payment histories and other behavioural indicators—to assess borrowers who lack formal employment records or conventional assets.

Metropol Credit Reference Bureau Chief Executive Officer Gideon Kipyakwai said AI is already reshaping credit assessment by enabling faster and more accurate lending decisions.

"AI is changing the way banks approach credit scoring, enabling faster, data-driven decisions while enhancing accuracy in risk assessment," Kipyakwai said.

Delegates also discussed the growing use of machine learning to detect fraud, identify borrowers at risk of default and strengthen real-time credit decision-making. However, they stressed that AI systems must remain transparent and explainable to ensure fairness and accountability.

Closing the discussions, Kenya Bankers Association Chief Executive Officer Raimond Molenje called for deeper regional collaboration to strengthen East Africa's competitiveness in the continent's financial sector.

"We have been playing second to the north and south of Africa as far as banking and the financial landscape is concerned. But we are here to change that landscape. We have to collaborate, we have to work together and forget our boundaries as East Africa and be able to look at ourselves as one region to be able to win," Molenje said.