Fewer Kenyans save as more borrow to survive

Share of Kenyans with a loan has gone up by 16 percentage points since 2016 as savings dip

The share of adult Kenyans saving formally or informally is at a four-year low while the proportion of those with loans is the highest in over a decade, a trend that could be attributed to tough economic times and the entry of low-value digital credit.

A NationNewsplex review of credit data reveals a drop of 10 percentage points in four years in the share of adults saving and an increase of 16 percent in the share that have a loan over the same period.

Those with savings make up 70 percent of adults, down from 80 percent in 2016, while half of them have active loans, up from 36 percent in 2006, according to a 2019 FinAccess study, published in partnership with the Kenya National Bureau of Statistics (KNBS) and the Central Bank of Kenya.


While the country’s drop in savings is in line with a long-term pattern of highs and lows, the fact that this is happening on the backdrop of a historically high borrowing rate signals an unhealthy financial situation.

“Kenyans are savers, but borrowing is rising rapidly,” says the study. “Saving rates have remained more or less the same over the years (since 2006), with periodic ebbs and flows, and this may be related to fluctuating economic conditions and a tendency to liquidate savings in times of stress.”

In the past 13 years, saving rates were highest in 2009 (83 percent) and 2016 (80 percent) and lowest in 2006 (65 percent) and in 2013 (66 percent).

Borrowing rate, on the other hand, have maintained an upward trend since 2013, when it stood at 28 percent. Apart from economic hardship, the report also cites the increasing availability of low-value credit as a reason behind a growing loan uptake.

It is likely that many Kenyans who initially saved with banks and saccos mainly so they could borrow against their savings deposited less money with financial institutions once digital lenders who offer unsecured loans came in. “They (digital lending platforms) are using a fairly clever technique. It is based on one’s activity on the platform as compared to the banks, where it is based on how much you have saved. It is gauged on one’s ability to repay as compared to saving,” says Robert Shaw, a public policy and economic analyst who believes this could be the other reason Kenyans are saving less.

That many such loans are expensive, with monthly interest rates of as high as 43 percent, has not slowed down the incursion by digital lenders, given the prevailing economic hardship and high unemployment rate in the country.

The economy has been registering jobless growth in the past few years, with a number of companies either closing or laying off workers. A Nation Newsplex tracker of job losses indicate that about 2,275 employees were either laid off or given notice by six major firms since July this year, according to media reports. Additionally, 388 companies, ranging from small businesses to subsidiaries of international firms, were reported to have closed shop between March and August this year, according to the Registrar of Companies.

While digital lenders generally serve a wide variety of clients in need of an urgent financial boost, many experiencing an economic shock like a job loss take such loans more frequently for survival. The Kenya Integrated Household Budget Survey 2015/2016 indicates that two-thirds of families access credit for meeting day-to-day needs and paying school fees; in other words, to survive.

The Kenya Bankers Association (KBA), in its Working Paper on Digital Credit, Financial Literacy and Household Indebtedness, released this year, observes that two in three (68 percent) mobile loan accounts at commercial banks are for loans as little as Sh100 to Sh5,000, implying their inability to provide long-term solutions for households and the likelihood that most of it goes into subsistence.

“Low-value loans are unlikely to enable households or firms to make capital-intensive or long-term investments, which have higher returns and can increase the incomes and wealth of households,” says KBA.

Maureen Kamau, 31, a public relations professional who lost her job at a parastatal in 2018, represents many Kenyans who turn to digital loans for survival once regular income streams run dry and savings are depleted.

“We were fired, and on trying to ask why, the management said it was because of the economic crisis the agency was facing,” she recalls.

It did not take long before her savings ran out.

Personal finance experts recommend that one should have, as savings, about three to six months of their living expenses to shield one against any unexpected termination of an income source.

“I did not have such an amount in my savings. That’s why it was hard for me to adjust because I had just moved from my father’s house and I had to pay rent and buy food. I also had a small loan which I needed to clear,” she says.
Before she knew it, she was dependent on more than one lending platform for her daily needs.

Insights on Kenyans saving little are also evident in the Statistical Abstract 2018, with private consumption (Sh6.69 trillion) taking 91 percent of the country’s net national disposable income in 2017 (Sh7.39 trillion). Private consumption is the value of the consumption goods and services acquired and consumed by households.

Additionally, since 2013, Kenyan households, together with the government, have been spending beyond what is available, with net savings on the negative every year since 2013, settling at a saving deficit of Sh409.1 billion in 2017.

Maureen’s monthly salary of Sh50,000, together with contributions from her siblings, also supported her parents. Now she no longer offers as much help as she used to and the impact is felt.

Unlike Maureen, who has so far managed to service these expensive and low-value loans, many clients have not paid back. About 400,000 people are listed by credit reference bureaus for defaulting on loans as low as Sh200, according to a 2016 survey by Transunion, one of Kenya’s three licensed credit reference bureaus.

Maureen says that being jobless has made it very difficult for her to save, especially given the rising cost of living. The second-quarter (April-June) statistical report by Kenya National Bureau of Statistics released last month shows that the inflation rate stood at six percent, a rise from four percent in the same period last year, driven by rising food, beverages and transportation costs.

“Sometimes I look for side hustles in my line of expertise. Most of them are volunteer opportunities which occasionally give tokens of appreciations that are quite meagre. Then there are personal items for which you can’t ask money, so you still end up borrowing,” she says.

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