Salary advance borrowings from the Co-operative Bank of Kenya (Coop Bank) rose to an average of Sh164 million daily last year, pointing to the tough balancing act facing salaried employees.
The lender disclosed that salary advances, issued under its product dubbed, e-flexi, grew by Sh59.91 billion last year compared with Sh50.28 billion in the preceding year.
This means that workers were on average tapping Sh164 million daily in salary advances, a rise from Sh138 million in 2020.
The surge in salary advances via the mobile platform, MCo-op cash, saw Co-op’s total digital lending hit Sh192.7 billion at the end of December 2021 from Sh122.2 billion in December 2020.
Data shows MCo-op customers jumped by 1.94 million to hit 6.58 million, meaning that the lender has since the onset of the pandemic in March 2020 added 3.42 million e-credit customers.
This is more than the 2.89 million the bank had added in five years to 2019 and highlights the growing popularity of salary advances.
The jump in workers seeking short-term credit through digital apps to plug gaps in their expenditure has partly been on the back of economic difficulties brought about by the Covid-19 pandemic.
Other banks such as KCB, Equity and NCBA also offer salary advance products but do not usually make the figures public.
Co-op Bank charges a processing fee of eight per cent on the amount of salary advance. In addition, customers pay 20 per cent excise duty on the processing fee and an insurance fee of 0.034 per cent of the loan value.
This means that a customer applying for a Sh100,000 salary advance incurs an Sh8,000 processing fee, Sh1,600 excise duty and Sh34 insurance fee, meaning they receive Sh90,366.
Customers are allowed to borrow as from Sh3,000, with processing done instantly. The amount is recovered within one to three months.
Salary advances are usually popular because they do not involve paperwork, guarantors or security for as long as one has an active salary account.
Banks like the product since it is on a check-off basis and therefore attracts a lower risk of default.
Many customers are seeking sheter in short-term credit such as salary advances to survive given the rising cost of living in an environment where salaries have nearly stagnated.
Official data shows that workers’ real wage earnings—a measure of income after accounting for the cost of goods and services that people buy—have never posted annual growth of more than 3.2 per cent in the seven years to 2020.
In 2020, workers’ real earnings shrank by 1.5 per cent, meaning that their ability to buy goods and services that they had afforded in the previous year was weakened. If prices are growing faster than wages, then people are getting inflation-adjusted pay cuts, making their lives more difficult.