Check-Off Loans in Kenya: The Two-Thirds Rule, Affordability and Employer Remittances
Check-off loans are repaid straight from the borrower's salary: the employer deducts each installment from payroll and sends it to the lender. For Kenyan SACCOs and lenders serving salaried workers, check-off is one of the lowest-risk ways to lend, but only when affordability, employer remittances and job changes are managed properly.
This guide explains how check-off lending works in Kenya: the legal limits on salary deductions, how to calculate what a borrower can afford with a KES example, how to run the employer relationship, and the risks to watch.
A practical summary, not legal advice. Confirm specific arrangements with your advocate and each employer.
How check-off lending works
- The lender signs an agreement with an employer (often a memorandum of understanding) covering deductions, remittance dates and how exits are handled.
- The borrower applies and gives written authority for the employer to deduct installments from their pay.
- The lender checks affordability against the borrower's payslip and the legal deduction limit.
- The employer deducts each installment on payday and remits the total to the lender with a schedule showing each employee's deduction.
- The lender reconciles the remittance against each loan and follows up any gaps.
SACCOs use check-off for member deposits and loans. Credit-only lenders use it for salaried borrowers through partner employers.
The legal limit: the two-thirds rule
Section 19 of the Employment Act, 2007 governs what an employer may deduct from wages. Lender check-off typically falls under:
- section 19(1)(g): amounts the employee has asked the employer in writing to deduct, where the employer has no beneficial interest, or
- section 19(1)(f): deductions authorised by written law.
Section 19(3) caps the total of all deductions made under subsection (1) at two-thirds of the employee's wages, unless the Cabinet Secretary prescribes otherwise. Put the other way, the borrower must keep at least a third. The cap covers all deductions together, including statutory ones, not just your loan.
For public servants, the government's payroll policy applies the one-third rule to third-party deductions such as check-off loans. Parliament has pressed the Public Service Commission to enforce it, as rising statutory deductions have pushed some civil servants below the threshold.
Section 19(4) also requires employers to remit amounts deducted under these provisions on time. Under section 19(5), failing to do so is an offence, punishable by a fine of up to KES 100,000, up to two years' imprisonment, or both.
Calculating affordability: a worked example
A borrower's monthly wages are KES 60,000, and current deductions (tax, statutory contributions and an existing loan) total KES 28,000:
| Step | Amount |
|---|---|
| Wages | KES 60,000 |
| Maximum total deductions (two-thirds) | KES 40,000 |
| Less existing deductions | − KES 28,000 |
| Room for a new installment | KES 12,000 a month |
At 12 installments and 2% a month, a KES 12,000 monthly installment supports a loan of about KES 116,000 at a flat rate, or about KES 127,000 on a reducing balance with equal installments. Use a flat or reducing balance calculation to fix the exact figure. Leave a buffer too: statutory deductions change, and a borrower pushed below the threshold is a borrower likely to default or complain.
Running the employer relationship
- Get a written agreement setting the deduction cut-off date, remittance date, remittance format (a schedule listing employee, ID, loan and amount) and the contact person.
- Keep each borrower's written deduction authority on file. It's the legal basis for the deduction.
- Reconcile every remittance loan by loan. A lump sum that doesn't match the schedule hides missed deductions.
- Agree what happens when someone leaves: notification, final dues and switching the borrower to direct repayment.
- Handle buy-offs and clearances: when another lender takes over a loan, confirm the payoff amount in writing and close the deduction promptly.
Check-off risks to watch
- Employer remittance failure. Deductions are made but not sent on. Track remittances by employer and escalate quickly; section 19(5) makes non-remittance an offence.
- Job loss or transfer. The repayment channel disappears overnight, so keep an M-Pesa repayment route ready.
- Over-deduction. New statutory deductions can push a borrower past the two-thirds cap, and employers may then cut or stop your deduction.
- Concentration. Too much of your book with one employer ties your portfolio to that employer's health.
Check-off and CBK's 2026 rules
Credit-only lenders offering check-off loans are still non-deposit-taking credit providers. CBK's 2026 regulations apply in full:
- full cost disclosure,
- early repayment without penalty,
- repayments applied to principal first,
- CRB notice rules,
- the collection conduct rules.
See CBK licensing for lenders and debt collection rules. SACCOs follow SASRA and the co-operative laws. See SASRA reporting requirements.
Managing check-off loans in Lendpoint
Lendpoint doesn't have a dedicated employer check-off module. Lenders run check-off loans with:
- monthly installment products, or single-payment loans timed to payday,
- employer remittances recorded against each borrower's loan with the actual payment date,
- overdue flags the day after an installment falls due, so a missed remittance shows straight away,
- M-Pesa STK push and Paybill as a fallback channel when a borrower leaves their job,
- bank and M-Pesa payments posting to the same ledger.
See Lendpoint for SACCOs or for lenders.
Frequently asked questions
What is a check-off loan in Kenya?
A check-off loan is repaid through salary deductions: the employer deducts each installment from the borrower's pay and remits it to the lender or SACCO under a written authority from the borrower.
What is the two-thirds rule for salary deductions in Kenya?
Section 19(3) of the Employment Act, 2007 limits the total of all deductions from an employee's wages at any one time to two-thirds of those wages, unless the Cabinet Secretary prescribes otherwise. The employee keeps at least one-third.
How do I calculate how much a borrower can take on check-off?
Take two-thirds of the borrower's wages, subtract all existing deductions, and the balance is the most a new monthly installment can be. Leave a buffer, as statutory deductions change.
What happens if an employer deducts but doesn't remit check-off payments?
Under section 19(5) of the Employment Act, an employer who fails to pay amounts deducted under the relevant provisions commits an offence and faces a fine of up to KES 100,000, up to two years' imprisonment, or both.
Do CBK's 2026 rules apply to check-off loans?
Yes, for credit-only lenders. Non-deposit-taking credit providers offering check-off loans must still follow the 2026 regulations on disclosure, repayments, early repayment, CRB listing and debt collection.
What happens to a check-off loan if the borrower leaves their job?
The salary deduction stops, so the loan agreement and employer agreement should set out notification and how the balance will be repaid, typically by switching the borrower to M-Pesa or bank repayments.
