The loans trap bogging down Kenyans

The loans trap bogging down Kenyans

By David Onjili

A 2019 survey conducted by the Federal Sector Deepening (FSD) has revealed that 1 in every 5 Kenyan borrowers defaulted on a loan in the last one year. This grim picture illustrates the harsh economic times that Kenyans have to put up with, whether amongst households, business owners or simply the employed.

The survey goes ahead to reveal how a majority of low-income households continue to live in a cycle of debts. Farmers who, for long, have been the sustainers of the country’s economy, have been worst hit too.

As at May, the CBK indicates that commercial banks had outstanding loans totalling to Sh2.7 trillion. Sh430 billion of this figure was taken by private households.

FSD-Kenya conducted a survey in March on the proliferation of digital loan platforms. The survey concluded that these platforms had not improved the lives of Kenyans; instead, it showed that many Kenyans had become prisoners to them. A huge number of the population borrowed to gamble while the rest majorly borrowed from one platform to settle a debt from another lending platform. Few actually borrowed to invest.

Some estimated 6.7 million Kenyans are digital borrowers and 31 percent of them as aforementioned borrow to play in the lottery. The Sacco Societies Regulatory Authority (Sasra) highlights that the lifestyles of Kenyans who borrowed money was actually disheartening if you observed the areas money was spent.

2.7 trillion
Value of outsanding loans taken by Kenyans from commercial banks

6.7 million
Number of borrowers from digital platforms. 31 percent borrow to gamble..

A good percentage of Kenyans borrowed to buy luxuries like cars, fund lavish weddings, modernise their houses by purchasing the latest furniture and electronics or even to fund funerals just to be recognised in society. In a report that reviewed loan books of more than 200 Sacco’s in 43 counties and comprising some 170 deposit taking institutions qualified the lavish intent to which most Kenyans seek credit and fail to repay.

The CBK on its part has continued to maintain its benchmark lending rate at 9 percent and this caps lending at 13 percent for normal banks. Sadly, this has discriminated many Kenyans as the lenders treat them as high risk groups eventually limiting private sector credit lending.  

Also worrying is the fact that a number of businesses are suffering due to bad debts to creditor. From the national government to the counties and even private sector clients, these customers have failed to settle their debts in time and thus businesses can’t keep afloat.

Despite the expansion of financial access amongst Kenyans, the key driver has been mobile money.

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