For most Kenyans in financial distress today, getting some bail-out cash is as easy as tapping on their smartphones. Is it?
No. Despite the ubiquity of lending platforms - from digital credit apps on their smartphones to shylocks at their workplaces - a new report on financial inclusion indicates that most Kenyans still rush to their friends and relatives when faced with an emergency.
“Social networks are the main solutions to meeting day-to-day needs when the income cycle gets depleted before the end of the cycle and also dealing with shocks for most Kenyans,” read part of the survey by Central Bank of Kenya, Kenya National Bureau of Standards (KNBS) and Financial Sector Deepening (FSD).
This even as financial inclusion surged to a high of 83 per cent, aided in large, by mobile money, according to the 2019 FinAccess Household Survey.
Compared to 2016, more Kenyans today can access banking, insurance and pension services from prudentially regulated institutions such as commercial banks, microfinance banks, deposit-taking Saccos, insurance providers and National Social Security Fund (NSSF).
However, for their day-to-day needs, most Kenyans will use informal channels such as borrowing in-kind or cash from the shopkeeper.
The preferred financial service provider - banker, insurer, and pension service provider all rolled up into one- is family and friends.
This brings into question the country’s impressive financial inclusion - where individuals and businesses have access to useful and affordable financial products and services that can meet their needs.
According to Dr Scholastica Odhiambo, an economics lecturer from Maseno University, most people are opening bank accounts just for the convenience of getting credit.
“If the stringent conditions of accessing credit in the formal institution take a toll on them, the accounts become dormant,” said Odhiambo.
Formal channels, including the ubiquitous mobile money, are expensive, according to XN Iraki, a lecturer from the University of Nairobi.
“Anytime I send money through M-Pesa, the recipient always reminds me: ‘Na uongeze ya kutoa’ (and include withdrawal fee),” said Iraki. In addition, there is interest to pay for bank loans and Credit Referencing Bureaus (CRBs) to keep track of your debts, added Iraki.
The many credit apps and recycled borrowing have seen a lot of Kenyans black-listed. “The next option is families,” according to Odhiambo.
“While banks can ask for collateral, friends and relatives might not ask. No paperwork, no waiting time,” says Iraki.
Indeed, things will get even worse with the recent hike on excise duty on any financial transaction.
Bitange Ndemo, a lecturer at the University of Nairobi, said ‘access’ as defined by the survey might be totally different from affordability.
“This ‘access’ has made people slaves - borrowing from one lending platform to repay another,” said Ndemo.
According to a 2017 survey by FSD, many Kenyans are now caught up in several mobile loans to service, forcing them to jump from one service provider to another.
The survey showed that 14 per cent of digital borrowers were balancing loans from more than one digital lender at the time of polling.
Use of insurance services is even more dismal among Kenyans dealing with financial shock.
A paltry two per cent of Kenyans use insurance to deal with shocks - mostly a major sickness, according to the survey.
“We are still believers in God and helping each other is part of our culture. Harambee was left at an informal level and now aided by M-Pesa and WhatsApp groups where they announce your contributions,’” said Iraki.
Instead, 51 per cent of them will borrow from friends and family to help with an emergency.
Another 18 per cent will sell their assets, livestock and poultry, get additional work or cut back on expenses to deal with the shock.
With six out of ten Kenyans surveyed saying they were unable to meet their daily expenses in each income cycle, help from family and friends became the diesel that turbo-charged them through the long nights.
Slightly over a third of Kenyans rushed to their loved ones for help or credit when they could not put food on the table or settle bills. Otherwise, a majority of Kenyans (13.1 per cent) who are mostly casual workers; had to put in more hours; sell their livestock (5.9 per cent), or dip into their mobile money savings (5.8 per cent).
Bitange says there is nothing wrong with taking care of our relatives as they took care of us.
However, some analysts believe it overburdens those working, leaving little resources for saving or investment.
A recent survey by KNBS showed that dependency ratio in the country increased to 81.6 per cent in 2015/16 period compared to 76.8 per cent a decade earlier, as the working population was overburdened by those who economically inactive.
“With over 60 per cent of the young population and most of these non-productive persons, depending on the few working population is causing economic stress. Households have to find a mean to cope,” said Odhiambo.
Official data shows that there are about 2.7 million, out of about 20 million working-age population, in wage employment.
Besides relying on family, shopkeeper loan has continued to be critical to most Kenyans.
According to the survey, in a span of three years, uptake of shopkeeper loan increased three-fold to 30 per cent in 2019 from 10 per cent in 2016 - making it the most popular source of credit.
Second to shopkeeper loan was credit from family, friend or neighbour at 10 per cent in 2019 from 6.1 per cent three years ago. This is even as uptake of loans from commercial banks, microfinance institutions and Saccos declined.
Another informal source of credit that recorded tremendous growth during the period under review was the digital loan apps whose uptake increased to 8.3 per cent from 0.6 per cent.
Besides mobile banking loan whose uptake increased to 9.5 per cent from 5.9 per cent; and Sacco loans increased marginally to 5.1 per cent from five per cent, all other formal channels of credit tanked.
It is not that Kenyans have no access to formal channels of credit (nine out of 10 Kenyans have access to formal financial services or products), these channels are not adequately meeting their needs with most them finding it difficult to get served by financial institutions including insurance companies.
Of the close to 9,000 households surveyed, 21 per cent said banks denied them credit because they did not have collateral such as title deed or log book.
Most of those denied by Saccos, 38 per cent, cited outstanding loans, while the majority of those denied loans by Microfinance banks, 37.8 per cent, did not have a guarantor.
Even the rising uptake of mobile money and digital loans may soon fizzle out, as more Kenyans risk being locked out for having a bad or no credit history.
55.1 per cent of Kenyans were denied credit by mobile money lending platforms such as M-Shwari and KCB M-Pesa because they had a bad or no credit, a reason that was shared by a third of digital loan borrowers who were denied credit.
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