New report shows 50% of Kenya's population trapped in debt cycle ▷ Kenya News

- Although 70% of Kenyans are saving, half of the country's population is in debt, the Financial Sector Deepening (FSD) study found out

- The report revealed there has been a steady rise in borrowing since 2013 which partly reflects tightening economic conditions

- The researchers argued rise in borrowing appetite coupled with increasing availability of low-value credit, could stimulate a cycle of escalating loans

A half of Kenya's population is currently struggling with debts due to increasingly tough economic times, a new survey has revealed.

The study by Central Bank of Kenya (CBK) backed Financial Sector Deepening (FSD) report found a whopping 50% of the country's population was in debt as at August 2019.

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A 2019 survey by research firm Financial Sector Deepening (FSD) found 50% of Kenya's population are trapped in debt cycle. Photo: Pulselive.
Source: UGC

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The 32 page report titled Inclusive Finance? Headline findings from FinAccess 2019, indicated although a majority of Kenyans are saving money, the rate at which they have been borrowing has been rising rapidly.

"Kenyans are savers, but borrowing is rising rapidly. Over 70% of the population are saving formally or informally and 50% of the population currently have a loan.

Savings rates have remained more or less the same over the years with periodic ebbs and flows. This may be related to fluctuating economic conditions and a tendency to liquidate savings in times of stress," the report said.

Over 70% of the population are saving formally or informally. 50% of the population currently have a loan.Photo: FSD.
Source: UGC

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The researchers noted there has been a steady rise in borrowing since 2013, and this may partly reflect tightening economic conditions which, coupled with the increasing availability of low-value credit, could stimulate a cycle of escalating loans.

"Economic conditions were particularly tough in 2017, with GDP growth the lowest since 2012 (4.7%). Manufacturing output growth dropped 0.2% in 2017, compared to an average growth rate of 3.6% per year between 2013 and 2016.

Agricultural output growth fell to 1.6% in 2017, down from an average of nearly 5% between 2013 and 2016. Set against this lacklustre growth, the country was experiencing severe drought and the price of basic consumables rose significantly – maize flour increased by 28% and petrol increased by 10%," the study indicated.

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Back to savings, the researchers found formal savings had overtaken informal savings.

Some 54% of Kenyans are now embracing mobile money wallets where they also save their cash, up from 43% who saved on mobile as at 2016.

"Perhaps surprisingly, the share of the population saving in mobile banking accounts (17%) has not changed since 2016, despite the fact that mobile banking accounts offer interest and deposit protection, giving them an advantage over the digital wallet," the report noted.

Formal savings had overtaken informal savings, with 54% of Kenyans now saving on their mobile money wallets. Photo: FSD.
Source: UGC

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According to the report, most savers considered degree of liquidity and flexible withdrawal terms as the most valuable features when choosing a savings device or option.

The mobile money wallets, the researchers noted, have increasingly become attractive because they enable people to keep money safe from the temptation to spend while at the same time providing ease of access in times of emergency.

"In this sense, the digital wallet beats its main competitor, the cash wallet, being easy to access but slightly more illiquid than cash. This could be one possible reason why cash savings at home have declined," the researchers said.

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The report indicated loans from other sources such as Sacco and chamas remained more or less stagnant, which suggested digital loans were not substituting traditional sources of credit, but instead reaching more borrowers.

"Loans are mainly used for consumption while savings have a broader range of use cases and are more likely to support productive investments and investment in assets.

Compared to other types of borrowing, SACCO and MFI loans are most likely to support larger investments. This contrasts with digital loans which are almost all for consumption or emergencies," the report said.

Most Kenyan savers considered degree of liquidity and flexible withdrawal terms as the most valuable features when choosing a savings device. Photo: FSD.
Source: UGC

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