Households increased borrowing from banks for domestic use by 7.5 percent between March last year and this year to take up 10 percent of the total loans issued by local banks to the private sector underlining the increasing reliance on loans over high cost of living.
Data from the Central Bank of Kenya (CBK) shows households borrowed Sh486.6 billion in the 12 months to March – up from Sh452.4 billion in March last year – beating the amounts taken by key sectors of the economy including manufacturing, agriculture, real estate and construction. The data showed there were about 10.89 million personal and household loan accounts by the end of 2020 but with many individuals holding over one account, which means a large chunk of Kenya’s population still does not have access to credit from formal lenders.
Digital credit providers
This has seen a sharp growth in non-bank lending through digital credit providers, shylocks, as well as credit facilities offered by leading telco such as Fuliza, KCB M-Pesa and M-Shwari, which cumulatively disburse more loans to individuals for household use than commercial banks.
For instance, Kenyans borrowed Sh502.6 billion from Fuliza during the same period, which is a 43.1 percent rise from the Sh351.2 billion that was advanced through the platform in the previous year. This means that Kenyans borrowed an average of Sh1.37 billion from Fuliza daily to underline the growing reliance on loans by Kenyans at a time the cost of living has shot up piling pressure on their budgets.
Kenyans also took up Sh46.3 billion and Sh86.1 billion from KCB M-Pesa and M-Shwari respectively. The Economic Survey 2022 shows the average cost of 330 goods and services that are considered essential to living rose by 6.1 percent last year even as real annual average earnings by workers reduced by 3.8 percent to Sh718,800 during the year reflecting a growing struggle by households to meet their basic needs.
Widening income gaps
Another set of official data shows the cost of living increased highest for Nairobi’s low-income earners during the same period compared to the rich and the middle class and perpetually above both the city and national average, underlining the effects of Kenya’s widening income gaps.
It showed that while the cost of living rose 5.90 percent for Nairobi’s low income earners, it jumped only 3.77 percent for upper income earners and 4.05 per cent for middle income earners to underpin the effects of rising prices of basic commodities on the living conditions of the poor.
The increased lending to households was, however, slower than the 9.9 percent growth in credit extended to manufacturers during the same period to Sh471.8 billion up from Sh429.2 billion.
Growth in credit disbursement to manufacturing helped the sector grow 6.3 percent last year driven by reopening of industries that had closed due to the Covid-19 pandemic as well as entry of new investors helping the sector add 336,800 new jobs to the economy.