Fuliza: How Kenyans are borrowing to pay debt and lend

A sugar cane hawker attends to his customers in Nyeri Town. [Kibata Kihu, Standard]

Financial advisors will caution you not to take debt unless it is for investment. Even then, they will say weigh your risks before taking a loan to finance a business or project. There are a few exceptions to this rule including emergencies.

But with the hard times that Kenyans are going through, this rule, and perhaps the entire rule book, has gone through the window. The majority of Kenyans are borrowing for consumption and probably worse, some are even borrowing for on lending to friends and relatives in distress. The result is that about two out of every 10 Kenyans are in debt distress and struggling to keep them above the water. 

A new report shows that 38 per cent of people who took part in a survey said they are borrowing for everyday expenses. Another 33 per cent are borrowing for an emergency. 

The report by Old Mutual shows that 11 per cent of the respondents in the survey were borrowing to repay a loan, while another six per cent were borrowing to lend money. Only 40 per cent are borrowing to buy stock or equipment for their businesses.

Kenyans have found themselves in the current predicament as some lost their jobs, the earnings of many of those left in employment have shrunk while the cost of living has kept edging up. The result is that many Kenyans are in distress.

“Almost half (48 per cent) of working Kenyans are financially stressed. An overwhelming nine in 10 Kenyan consumers are earning less than or the same as they did before Covid. This means that the majority of these consumers currently have less money in their pockets than they did before being impacted by the pandemic,” said the Old Mutual Financial Monitor. 

It added that Kenyans had resorted to borrowing to make ends meet. While many Kenyans in formal employment have such options as credit cards that charge lower interest rates and repayments are staggered over time, many are borrowing from friends and family, who are equally struggling and the amount advanced is marginal. Others have emptied their savings.

Some are also taking loans from mobile money accounts. While the report is not specific on loans from mobile accounts, there are those taking loans from ‘loan app’ that have in the past been criticised for charging exorbitant interest and even termed as predatory lenders. 

“To make ends meet over the last year, 41 percent of Kenyans borrowed money from family or friends. One in four borrowed from Chamas, while some (38 per cent) used their savings to sustain themselves,” said the report. 

“Paying off debt is among the top three financial priorities amongst Kenyans. The most prevalent formalised credit used includes credit cards at 34 percent (which are mostly taken up by those formally employed), personal loans from Chamas (25 percent) and personal loans from friends or family (24 per cent). Thirty-seven per cent make use of their mobile money accounts to take out a loan.”

It is against that Kenyans are least bit optimistic about the growth prospects of the economy. This is even as the government exudes confidence that it has put in place adequate measures that should see the economy turn the corner, bring down the cost of living and improve the fortunes of Kenyans. 

“Due to the financial stress and the challenging macroeconomic environment, Kenyans confidence in the economy is very low at only16 per cent (lowest amongst 20- to 29-year-olds at seven percent),” said the report. 

“Another contribution to financial stress is dependents. Three out of four working Kenyans have children, with the majority being less than 12 years old. 58 percent have other adult dependents who rely on them financially, and these are mainly their parents. Overall, 46 percent are a part of the sandwich generation (financially taking care of both children and adult dependents).”