Kenyans turn to friends, relatives as lenders shy off

Friends, relatives and neighbourhood kiosks are increasingly becoming the preferred financial bulwarks against the prevailing tough economic times that have led many Kenyans into despair.

A majority can hardly save, are poorly prepared for shocks and immediately turn to friends and relatives to beg for cash when faced with financial crises, according to the latest Financial Access (FinAccess) Household Survey conducted by the Central Bank of Kenya and FSD Kenya.

The survey profiles a male urban resident aged between 26 and 35 as the most burdened by begging relatives since they fit squarely in the 21.7 per cent of the population considered financially healthy.

The number of those seeking credit from shopkeepers almost tripled from 9.9 per cent in 2016 to 29.7 per cent in 2019. Borrowers from shops make the highest group of defaulters at 45.4 per cent, extending the pressure on the small businesses equally struggling to stay afloat.

The default rate is more than twice that of mobile bank loans at 18.1 per cent and it is about to get even worse based on the responses of a majority of those surveyed.

“About 51 per cent of the population nationally reported that their financial status worsened in 2019 compared to 23.8 per cent who reported improved status. It was worse for those who live in the rural areas at 53.3 per cent,” the survey found.

At the national level, fewer people (21.7 per cent) are financially healthy in 2019 compared to 39.4 per cent recorded in 2016.

The study, which sampled 11,000 households in urban and rural areas, also found that 62.1 per cent of Kenyans cannot meet their daily expenses each income cycle, which is every month for salaried employees.

Out of those who approach friends, 24.7 per cent go to beg and only 6.5 per cent ask for a loan. Another 10.9 per cent just do nothing, which may still force the earning family member or friend to intervene given the societal attachments Kenyans have to one another.

“Friends and family are the main financial solutions used by [a] majority of Kenyans when they run out of money to meet their day-to-day needs,” the survey found.

Friends and families also form a safety net for a majority of struggling kin faced with crises. About a third (36.2 per cent) of households had faced some form of financial upset or another in the past 12 months, with the most common involving their health.

This happens across the economic divide, but the poorest are hardest hit by economic shocks. The well-to-do were found to feel only a bit of a pinch when a family member dies.

For the poor, lack of credit and inability to save due to lack of income now dampens the favourable ranking Kenya got in formal financial inclusion, which has risen to 82.9 per cent, up from 26.7 per cent in 2006.

It shows that, while many can access financial services on paper, in practice, they can hardly get assistance from the mobile money services when in need. Credit access, which rises the more educated one is, is problematic for low-income earners with most of them missing out because they have either bad credit or no credit history.

Although mobile money service providers served close to 20 million adults out of the 25.1 million analysed, about 52 per cent could not access any credit due to a bad credit history. Saccos largely refused to lend them money due to lack of collateral and guarantors while chamas declined due to insufficient income or savings.

“Kenyans have been able to generate an income over the years, but are unable to make savings, as they are not certain of when they’ll make their next earnings. The results also indicate that 59 per cent of Kenyans are working towards meeting their future goals, with education remaining the leading life goal for Kenyans, cutting across income groups,” the report found.