Rising business expenses drive Kenyans to borrow more

The rising cost of living is driving more Kenyans to take short-term loans on digital platforms to sustain their struggling businesses.

According to MoneyMarch 2022 report by the digital lender, Tala, majority of borrowers on the platform at 59% have increased their borrowing in the last six months in order to support their businesses which are recovering from the effects of COVID-19 coupled with the rising expenses as prices of basic commodities as well as fuel remain elevated.

“This report’s main objective was to help us understand our customers, their needs, how their preferences are changing and how we can evolve to meet their needs. In addition, we believe that empowering our customers to make financial decisions based on education, will help break the cycle of over-indebtedness and bring more underbanked Kenyans into the financially healthy circle. 68% said their income had increased in the past six months but 53 % cited higher expenditure in the past six months,” said Teddy Kahiro, Tala User Research Manager.

29% of respondents said their income remained the same during the six months period despite recording a 42% rise in their expenditure, while 4% who said their income was lower recorded a 56% rise in expenditure.

According to the report, the most cited reason for borrowing was to cater for business expenses at 43%, while adding stock was second at 35%.

School fees, utilities, and medical expenses followed at 20%, 19% and 6% respectively.

However, 82% of Tala borrowers have full-time time jobs drawing 68% of their income from the employment while 26% draw their income from their own business sources.

Nonetheless, 45% of Tala borrowers said they save regularly, 42% save occasionally on what is left after expenses while 9% said they rarely save as income and expenses are equal in what Tala attributes to the burden of expenses.

“Empowering our customers with solid education on finances is a key objective for us. We believe financial resilience among the underserved and underbanked Kenyan majority can be enormously boosted by helping them understand how money works in everyday life. Financial literacy education will give young people the foundations of future success and can help economically disenfranchised Kenyans out of deprivation,” said Annstella Mumbi, Tala Country Growth Manager.

Regular saving among borrowers who own business on the platform is the highest at 49%, full-time job 46%, part-time job 38% and unemployed 13%.

58% of borrowers in Kenya borrow from more than one digital lender with half borrowing between Kshs. 25,000 – 30,000.

Banks are the most preferred alternative borrowing source among the respondents at 39% while family and chamas follow with 29% and 22% respectively.

The survey had 417 Tala respondents covering October to March period.