Loans issued against cars, livestock, furniture surge on financial crunch

Loans Kenya inflation

The number of loans issued against movable assets such as household items, crops, livestock, and bank accounts increased by 15 per cent in the 12 months to June. 

Photo credit: NTV Kenya

The number of loans issued against movable assets such as household items, crops, livestock, and bank accounts increased by 15 per cent in the 12 months to June, indicating sustained financial pressure on households hit by the economic downturn.

Data from the Companies Registry show Movable Property Security Rights (MPSR) notices —which are filed by banks and microfinance institutions (MFIs) to secure the interest of movable collateral to issue loans — were recorded at 118,157 in the year to June compared to 102,637 notices made in the same period last year.

It was the highest amount of notices filed at the registry since the financial year 2018/19 when a record 120,380 notices were filed, signalling a higher appetite for loans by borrowers amid high inflation.

This follows the MPSR Act 2017 protecting lenders using personal assets in case of default. The Act was meant to move away from the use of the traditional use of immovable assets such as land and buildings to access credit, denying loans to individuals and small enterprises that lack high-value properties.

Register personal assets

Banks, MFIs, individuals, and other secured creditors are required to register personal assets such as television sets, livestock, maize, or stock in a business as collateral under the Business Registration Service (BRS) as a way of securing interest before issuing the loan and gaining priority over other creditors.

The Act came at a time when bank lending to small and medium-sized enterprises (SMEs) had dropped due to higher risk profiling and lack of collateral among the sector over the reduced scope of security instruments. It was meant to enable borrowers to use their personal property as collateral. Borrowers can use one collateral to access multiple loans or several assets for one loan.

Kenya’s inflation rate – which hit a 58-month high last month – has exerted huge pressure on households that have seen an uptick in demand for loans.

Loans for domestic use

Many households with bank accounts were forced to turn to their lenders for loans for domestic use, with this type of borrowing growing by 7.5 percent between March last year and this year. The borrowing amounted to 10 per cent of the total loans issued by local banks to the private sector.

Data from the Central Bank of Kenya shows households borrowed Sh486.6 billion in the 12 months to March – up from Sh452.4 billion in March last year – beating the amounts borrowed by key sectors of the economy including manufacturing, agriculture, real estate, and construction.

It showed that there were 10.89 million personal and household loan accounts by the end of 2020 with many banked individuals holding more than one bank account.

Falling demand

Also struggling are businesses that are listing their assets at the registry as collateral with the rising inflation driving declines in output and new orders for goods and services amid falling demand.

Stanbic Bank Kenya’s purchasing managers index (PMI) released last week showed that the manufacturing, construction, wholesale and retail sectors were the most heavily hit by the fall in sales last month in contrast to service firms which saw a marginal increase in new business.

The report said struggling firms are now shedding part of their workforce in a bid to reduce their costs.

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