Mr Frederick Ndung’u is a casual worker in the populous Githurai estate in Kiambu County.
He earns a commission for every loaf of bread he supplies, but the income is so inconsistent that he has to constantly find creative ways to put food on the table, pay rent and support his siblings.
“If you have a job like mine, the money you make depends on how much sales you make during the day, which means on a bad day you may go home with empty pockets,” he says.
But luckily for him, his credit-worthiness enables him to get short-term loans from digital lenders to pay his bills whenever he has had a dry day at work.
“As long as you pay on time, these lenders will always give you a loan. This is important because whenever I have an urgent financial need, I am able to borrow and pay later,” he adds.
Mr Ndung’u has a bank account but does not qualify for a bank loan yet.
As such, he is not among the 10.89 million bank account holders who took loans from banks last year for personal and household use.
However, he is among ordinary Kenyans who have to borrow for their daily needs due to the rising cost of living.
Central Bank of Kenya (CBK) data shows that of the 11.42 million bank account holders who accessed loans last year, 95.34 per cent used the money to pay for food, rent, school fees, buy cars and other personal expenses.
This saw banks lend Sh843.59 billion to households, which accounts for 28.06 per cent of the Sh3 trillion that banks loaned out last year.
This dwarfed amounts that were lent to economic activities that are crucial for generation of jobs and spurring growth such as agriculture, manufacturing, construction and trade, which were lent Sh108.05 billion, Sh416.84 billion, Sh117.42 billion and Sh517.72 billion respectively.
Household debt has been worsened by the Covid-19 pandemic, which has accelerated unemployment rates following mass layoffs amid a depressed economy, forcing families to look for alternative ways to finance rising needs.
To underline just how dire the dependence on borrowing by families has become lately, just two decades ago, households borrowed only Sh9.5 billion in 2000, which was only 3.3 per cent of the Sh288 billion that banks loaned out in that year.
This means that, at least formally, household debt has grown 89 times in just 21 years.
At this rate, even the government’s borrowing appetite, which has grown exponentially under President Uhuru Kenyatta, did not grow so fast.
Kenya’s public debt has grown 13 times over the same period, increasing to Sh7.71 trillion this year, up from Sh598 billion in 2000.
However, this data relates to bank lending alone, which does not fully capture the extent of borrowing by Kenyans.
The data leaves out the many loans advanced by shylocks, unregulated digital lenders and others.
Increased internet connectivity has seen an explosion of unregulated digital lenders that provide easy access to loans with extortionate interest rates, sometimes trapping borrowers in a vicious debt cycle.
Increased borrowing has also been fuelled by rapid population growth and an increase in the number of banks, branches, ATMs as well as adoption of mobile banking, which have increased the number of people applying for loans and eased to loan facilities.
During this period, Kenya’s population has increased by more than 15 million people from 30.96 million in 2000, bank branches have increased from 465 to a network of 1,502 branches across the country, while ATM machines have increased from 166 in 2001 to 2,412 by December last year.
Following the removal of interest caps two years ago, most banks are pricing their loans at interest rates of between 12 and 18 per cent per year, and at a time incomes are either falling or simply stagnating, the annual costs of repaying these loans thin the spending envelope and often require another round of borrowing.
Financial analyst Simon Gatheca says the rising cost of living has not been matched by a corresponding increase in income, forcing individuals to borrow.
He, however, advises that Kenyans can reduce dependence on loans by aligning their spending with their income.
“Budgeting is a key financial tool that not many people take seriously. When you get your salary or income from your business, you need to prioritise spending on essentials such as rent and food and cut budgets for non-essentials such as entertainment,” he said.
He added: “Just because it is easy to borrow these days, it does not mean you have to unless you need to. Also, Kenyans need to embrace the culture of saving to build wealth over time and invest to grow their income.”
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