Counties with the worst loan defaulters exposed

The survey showed that at least 40 per cent of households that took loans in nine counties defaulted.

Photo credit: Pool

Residents of at least 17 counties are struggling to repay loans amid biting economic hardships, with at least a quarter of borrowers in these devolved units having defaulted, a report has revealed.

The report, which reveals the real impact of the prevailing economic hardships – occasioned by high cost of living and biting drought in parts of the country – on households’ financial obligations, shows that in more than half of the 47 counties, at least 20 per cent of borrowers defaulted on loans.

With default rates of 74, 59 and 58 per cent, Marsabit, Garissa and Samburu counties respectively were the worst hit, the ‘FinAccess Household Survey, County Perspective’ indicates.

The findings of the survey were released by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics (KNBS) and the Financial Sector Deepening (FSD) Kenya last week. 

“Marsabit, Garissa and Samburu counties recorded the highest level of debt distress, proxied by default rates of 74 per cent, 59 per cent and 58 per cent among the adult population, respectively. This may be explained by climate-related shock of drought facing these counties, which has reduced the ability of borrowers to repay their loans,” the report observed.

The survey showed that at least 40 per cent of households that took loans in nine counties defaulted, while a third of the households that borrowed from financial institutions in 14 counties failed to repay as per their agreements with lenders, leading to defaults. 

Other counties where residents recorded high default rates are Isiolo (46.5 per cent), Nyamira (45.7 per cent), Wajir (44 per cent), Meru (43.6 per cent), Kisii (42.9 per cent) and Mombasa (41.2 per cent).

Six of the nine counties where more than 40 per cent of borrowers defaulted on loans are classified under arid and semi-arid lands (Asals), and so are 11 of the 14 counties where at least a third of borrowers defaulted, the report showed.

“The results indicate that formal financial inclusivity seems to reflect the level of economic activity, population density and urbanisation. Counties of Nairobi, Nyeri, Kirinyaga, Murang’a and Kiambu were the only ones with the adult population included in the formal financial services, with rates above 90 per cent,” the report stated.

At least 23 counties have so far been declared as facing acute starvation, with more than four million Kenyans affected.

In most of the affected counties, residents recorded high loan defaults.

Besides economic hardships, the report also points to other challenges residents in such areas could be exposed to, on account of these records.

One major challenge is that lenders look at the credit history of a region, gender, age-group and other such metrics while pricing loan products, which means that such areas could be considered high risk, thus attracting high interest rates for would-be borrowers.

Metropol CEO Gideon Kipyakwai says lending is becoming more scientific as lenders explore all possible ways to avoid losses amid the shift from blacklisting of borrowers to using credit scores to price loans.

“We do scoring to see your probability of default and therefore compute the expected credit loss should you default. This enables banks to assess the risk and load another one or two per cent on interest rate.

The two key attributes (that we’ll be using to determine the interest rate one is charged) will be willingness and ability to pay. Where there is no willingness to pay, it will take time to convert such people,” Mr Kipyakwai says.

Banks have already started rolling out the new Credit Reference Bureau (CRB) framework, which  prioritises charging higher interest on risky borrowers and lower fees on borrowers with low risk of default.

The counties’ Finaccess survey showed that borrowers in 10 counties had defaults at rates lower than 10 per cent.

The counties are Busia, the lowest, at 3.8 per cent, Nandi and Siaya (4.1 per cent), Nairobi (7.1 per cent), Vihiga (7.4 per cent), Tana River (8.9 per cent), Uasin Gishu and Trans Nzoia (9.1 per cent), Elgeyo-Marakwet (9.5 per cent) as well as  Kakamega and West Pokot (9.6 per cent).

Nearly all the counties where residents recorded low rates of default either do well in Agriculture or trade due to existence of economically strong urban centres.

The report assessed various aspects of financial services and how they played out in the 47 counties, including access to services, usage and public awareness of different financial services, debt distress at the household level, sources of financial advice and challenges consumers face while using different products and services.

“A usage dimension that focuses on the regularity and frequency of using financial services at the county level indicates that Nairobi, Mombasa, Kiambu and Kisumu have the highest level of utilisation of banking services providers, while Garissa, Tana River and Marsabit fall on the other side of the pyramid.


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