Households borrow Sh58bn in nine months on tough economy 


Kenyans are heavily relying on mobile loan facilities such as Fuliza to get cash for their daily spending needs.

Photo credit: File | Nation Media Group

Households borrowed Sh213.5 million daily from commercial banks, microfinance banks, and Saccos in the nine months to September as a biting cost of living pushes more people towards loans to settle their daily bills.

Central Bank of Kenya (CBK) data shows households borrowed Sh58.3 billion from financial institutions between January and September signalling increased demand for loans.

But to underline the increased appetite for loans from private households, this is four times more than the Sh14.4 billion or Sh52.7 million daily that lenders disbursed during the same period last year.

A recent report shows residents of at least 17 counties are struggling to repay loans, with at least a quarter of borrowers in these devolved units – including Marsabit, Garissa, and Samburu counties - having defaulted.

Simon Gathecah, a financial analyst, says loans are becoming a burden to many households and cautioned that borrowers must undertake fiscal discipline to manage their debt to avoid falling into a cyclical debt trap.

“People are now finding themselves with heavy debt burdens which they fail to extricate themselves from,” said Mr Gachecah.

“If you must borrow, then borrow an amount that you can manage to repay.”

Lenders are enjoying good business with demand for loans increasing not only from households but also businesses from key sectors of the economy including trade, manufacturing, real estate, building and construction, agriculture, and transport.

High interest

The increased borrowing indicates that borrowers are undeterred by the prevailing high-interest rates that followed the CBK’s move to severally raise the base lending rate this year pushing up the cost of loans.

The Monetary Policy Committee (MPC) in May raised the Central Bank Rate (CBR) to 7.50 per cent from 7 per cent – the first increase of the benchmark rate since July 2015 – to tame inflation.
The MPC for the second time in four months raised the base lending rate further to 8.25 per cent in September further raising the cost of borrowing as inflation hit a five-year high. 

The raising of the rate saw the cost of loans from commercial banks hit 12.38 per cent in August which is the highest rate since November 2019.

The average rate of loans from commercial banks rose further to 12.41 per cent in September.
However, households are finding it harder to pay for food, rent, electricity, fuel, and school fees among other needs forcing many to resort to lenders for emergency loans despite the high-interest charge.

This comes at a time Kenyans are also heavily relying on mobile loan facilities such as Fuliza, M-Shwari, KCB-Mpesa, and digital lenders to get cash for their daily spending needs.

In the 12 months to March, for instance, Kenyans borrowed Sh502.6 billion from Fuliza which is offered by Safaricom, translating to borrowings of Sh1.37 billion daily.

During the same period, Sh46.3 billion was borrowed through KCB M-Pesa and Sh86.1 billion through M-Shwari.

Inflation last month reached a 65-month high of 9.6 per cent due to high food, fuel, electricity, and rent prices.
The last time Kenya’s inflation crossed the current figure was May 2017, when it hit 11.7 per cent, highlighting the pain households continue to endure in the face of a worsening cost of living.
To ease the burden of the high cost of commodities, the government has opted to extend subsidies on fuel and fertilizer for a while longer owing to their productive essence to the economy.

This saw the government spend nearly double its annual budget on subsidies within three months.
President William Ruto’s administration spent Sh43.9 billion in the first quarter of the financial year 2022/23 on subsidies, nearly twice the Sh22.2 billion that was budgeted for subsidies for the entire fiscal year.

It is also an eight-fold increase from the Sh5.6 billion that was used on subsidies in the first quarter of the financial year 2021/22.