Women cut costs to repay loans as men use savings

More women prefer cuts on expenditure to service their loans compared to their male counterparts who mainly favour digging into their savings to clear debt, a new survey by the Central Bank of Kenya (CBK) said, capturing a clash in financial judgments by the two genders.

A newly published financial sector stability report by the CBK shows that a majority of females (42 per cent) prefer to cut expenditure on non-food products to cover debt repayment. The survey also shows that 41.2 per cent of females reduced spending on food to provide for the repayment of loans.

On the part of males, the most preferred strategy of debt repayment is digging into savings (44 per cent), followed by reduced expenses on food items (39.1per cent).

This came as the survey revealed that more households were unable to service debt last year due to financial stress.

“The 2021 survey results indicated that households’ ability to settle maturing obligations has declined, leading to high debt distress. Only 42.6 per cent of borrowers were able to settle their maturing obligation in time, with 10.7 per cent of borrowers completely defaulted on their loans. In fact, 14.4 per cent of respondents with existing loans in 2020/2021applied for loan restructuring as they could not settle on time” CBK said.

This has implications for rising non-performing loans and in turn financial stability risks concerns.

“To mitigate this, households resorted to; cutting down on other expenses, savings depletion, and looking for additional work/business and took another loan to repay. About 29.6 per cent took another loan to repay, further worsening household indebtedness” the regulator added.

Reduction in loan uptake

The CBK projects a reduction in loan uptake by firms and households in the second half of this year on tighter credit conditions by banks.

The regulator said though Kenya’s financial sector remains stable and resilient into 2022, supported by sufficient capital and liquidity buffers, there are heightened credit and operational risks that will affect lending.

“Tightening of lending standards by banks may increase non-performing loans and reduce credit uptake by firms and households, further undermining recovery and financial sector stability,” the CBK said.

Banks have since last September heavily cut back on lending to individuals and small businesses based on their risk profiles citing the incapability to assess their creditworthiness.

Moratorium on negative listing

President Uhuru Kenyatta in September last year announced the moratorium on the negative listing of borrowers with loans below Sh5 million by credit reference bureaus (CRBs) for a year, cutting credit information sharing in the banking sector.

The suspension of the listing of loan defaulters was part of the measures to cushion borrowers hit by the Covid-19 pandemic.

The directive, while protecting current defaulters, has slowed down lending, especially for individuals and small enterprises which are seen as riskier compared to large companies.