More Kenyans hooked on loans as pandemic takes its toll

A group of boda boda riders huddled together at the Syokimau bus stage.

It is well past the curfew hours imposed countrywide to stem the spread of the coronavirus, but the group seems unbothered. Their discussion is punctuated by occasional bouts of laughter and calls from some of the riders as they try to draw the attention of passersby.

My curiosity is piqued, and I ask the rider whom I had hailed down minutes earlier what the gathering is about late at night and past curfew hours. 

“It is a meeting of our chama (an informal cooperative society) members, whose main agenda is debt collection. People are asking for an extension on their payments, which are overdue,” said Brian Mageka, who is also part of the chama.

The boda boda riders are just a fraction of Kenyans struggling to get by and service their loans since coronavirus landed on the Kenyan shores in March last year.

The pandemic has shuttered every sector of the economy, rendering millions jobless.

At the height of the pandemic last year, banks allowed individuals and businesses to restructure their loans in a bid to lessen the economic burden occasioned by the virus. 

But over a year after the pandemic struck and the economy reopened, many Kenyans such as the Syokimau boda boda riders are still in financial doldrums and now depend on loans, mainly from the ubiquitous digital lenders to get by. 

“I have loans with all the digital lending agencies; for instance, I take a loan from Branch to pay Tala,” said Mageka.

“The most important thing is to ensure you protect your credit score because my life revolves around these loans,” he added.

Commercial banks had 3.9 million mobile loan accounts as of April this year, with Kenyans borrowing about Sh50.6 billion ($468.5 million), according to the Central Bank of Kenya (CBK).

Unregulated lenders

In comparison, the CBK boss said, unregulated digital lenders had disbursed loans estimated at Sh4 billion.

While unsupervised lending from the digital lenders accounted for less than one per cent of the banking sector’s 3.2 trillion-shilling loan book, about two million people use them, on average eight times a year, according to Dr Njoroge.

The latest data from the regulator showed that a majority of Kenyans, especially the youth are surviving on debt, sometimes borrowing from one digital lender to pay off another.

“According to the survey data that we have, about 8.3 per cent, or two million people of our adult population, use the unregulated digital credit channels,” said Njoroge told members of the National Assembly about the survey findings last week.

“These are people borrowing from one platform to pay a loan in another platform, and we are talking about young people who are borrowing for betting...,” he added.

The regulator’s findings mirror those of a 2019 study by Financial Sector Deepening (FSD) Kenya that indicated that young people tap into multiple sources of credit, particularly when anchored with a stable source of income or social network.

According to the study, 23 per cent of Kenyans aged between 18 and 25 had borrowed from a digital loan in the past year.

Men accounted for the biggest proportion of digital borrowers at 60 per cent compared to women at 40 per cent.

“Like borrowers who use formal financial intermediaries, digital borrowers are predominantly male, but unlike other formal and even informal borrowers, digital borrowers are predominantly under the age of 35 (62 per cent),” said FSD in its report.

FSD further found that digital borrowers are more heavily concentrated in urban areas.

According to the study, 67 per cent of digital borrowers live in urban settings compared, with 44 per cent of them in formal employment and 34 per cent in informal jobs.

“The distribution of digital borrowers among livelihood categories is more uniform: self-employed individuals constitute the single largest category (29 per cent) by a small margin over employed individuals (27 per cent),” explained FSD in the study.

In another 2018 study, the Mastercard Foundation found out that young people aged between 18 and 30 make up more than half of M-Shwari’s user base.

“Initial indicators from a variety of sources indicate that young adults in their working years need and will use credit products,” explained the report.

M-Shwari is a paperless banking service for M-Pesa subscribers provided by NCBA Bank in conjunction with mobile service provider Safaricom that allows users to save and borrow.

“This is also true among young people using informal saving groups,” explained the report. 

Personal finance expert Patrick Wameyo said barring digital lenders from listing defaulters with credit reference bureaus is not the solution for runaway borrowing among many Kenyans.

“Our financial literacy levels are alarming in this country, and once you announce that the regulatory check on poor borrowing habits has been removed, then the illiterate masses will flock into this trap,” said Mr Wameyo.

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