Kirui Nick
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Recent data from the Credit Reference Bureau (CRB) indicates a widening default on digital loans by Kenyan youths.
Kenya’s 2019 census shows that 5,341,182 (38.9%) of the 13,777,600 youth are jobless. The Covid-19 pandemic aggravated this situation further when nearly 730,000 Kenyans lost their jobs.
Kenya has over 17 million eligible digital loan clients, with the youth being the majority. It has however been revealed that a good number of them have devised novel ways of acquiring repeat loans even if they default on repaying earlier ones.
A CRB executive has called them out saying such acts are unlawful and abhorrent; they must be nipped in the bud. The trick used to achieve this is fairly simple; once one applies for a digital loan and it is disbursed to their line, they withdraw the cash and discard the SIM card used during the transaction and proceed to acquire a different line. At times, they go the extra mile to acquire a new line using falsified personal details and apply for a fresh loan either with the previous digital lender or a new one incognito.
On a positive note, the CRB report noted that there is a trend where a good number of Nairobi-based digital borrowers access digital loan platforms between 2am and 5am, with further study revealing that these are majorly small-time traders based in the capital’s informal markets and settlements.
It is encouraging to note that a survey called ‘2021 FinAcces Household Survey for the years 2020/2021’ shows that more borrowers on popular mobile apps took loans to start or grow their businesses. The number of Kenyans taking loans from financial institutions rose by 10 per cent since 2019, reaching about 14.4 million by 2021.
A good number of Kenyans prefer digital loans due to their availability and convenience as opposed to traditional loans from banks, and SACCOs. There are over 19 million Kenyans listed by the CRB; out of these, two million are defaulters and can scarcely access financing from any financial institution. This is a deplorable situation as the general economic markers in Kenya are still pointing towards difficult times ahead with rising inflation, few jobs in the market, and narrowing access to capital from financial institutions.
On October 1, 2021, the Central Bank of Kenya opted not to extend the six-month freeze for listing loan defaulters with CRBs, paving the way for the blacklisting of thousands of borrowers, particularly those with loans over Ksh.1,000.
However, it is not lost on financial consultants that most of the youth borrow to spend on consumption and overtime incur huge debts which cannot be serviced as there is no return on borrowed facilities.
Digital credit products are well known in the Kenyan market, but observers are wondering whether it is the high loan rates that are partly contributing to the bad-loan portfolio from the youth. Safaricom PLC’s M-Shwari charges a ‘convenience fee’ of 7.5% on credit regardless of its duration, pushing its annualized loan rate to 395%. Tala and Branch offer annualized interest rates of 152.4% and 132% respectively.
Digital financing has however seen Kenya achieve remarkable progress in financial inclusion in the past 10 years’ courtesy of the digital lending revolution which simply requires ownership of a line and a phone. This ease of access to credit facilities has greatly contributed to rapid digital credit uptake.
However, it should be investigated if it also has negative connotations affecting the financial health of low-income households. It might seduce the poor and vulnerable youth to accrue huge debts today and occasion the loss of future borrowing opportunities. Those blacklisted by CRB are locked out of credit options now and in the future
Kenya’s 2019 census shows that 5,341,182 (38.9%) of the 13,777,600 youth are jobless. The Covid-19 pandemic aggravated this situation further when nearly 730,000 Kenyans lost their jobs.
Kenya has over 17 million eligible digital loan clients, with the youth being the majority. It has however been revealed that a good number of them have devised novel ways of acquiring repeat loans even if they default on repaying earlier ones.
A CRB executive has called them out saying such acts are unlawful and abhorrent; they must be nipped in the bud. The trick used to achieve this is fairly simple; once one applies for a digital loan and it is disbursed to their line, they withdraw the cash and discard the SIM card used during the transaction and proceed to acquire a different line. At times, they go the extra mile to acquire a new line using falsified personal details and apply for a fresh loan either with the previous digital lender or a new one incognito.
On a positive note, the CRB report noted that there is a trend where a good number of Nairobi-based digital borrowers access digital loan platforms between 2am and 5am, with further study revealing that these are majorly small-time traders based in the capital’s informal markets and settlements.
It is encouraging to note that a survey called ‘2021 FinAcces Household Survey for the years 2020/2021’ shows that more borrowers on popular mobile apps took loans to start or grow their businesses. The number of Kenyans taking loans from financial institutions rose by 10 per cent since 2019, reaching about 14.4 million by 2021.
A good number of Kenyans prefer digital loans due to their availability and convenience as opposed to traditional loans from banks, and SACCOs. There are over 19 million Kenyans listed by the CRB; out of these, two million are defaulters and can scarcely access financing from any financial institution. This is a deplorable situation as the general economic markers in Kenya are still pointing towards difficult times ahead with rising inflation, few jobs in the market, and narrowing access to capital from financial institutions.
On October 1, 2021, the Central Bank of Kenya opted not to extend the six-month freeze for listing loan defaulters with CRBs, paving the way for the blacklisting of thousands of borrowers, particularly those with loans over Ksh.1,000.
However, it is not lost on financial consultants that most of the youth borrow to spend on consumption and overtime incur huge debts which cannot be serviced as there is no return on borrowed facilities.
Digital credit products are well known in the Kenyan market, but observers are wondering whether it is the high loan rates that are partly contributing to the bad-loan portfolio from the youth. Safaricom PLC’s M-Shwari charges a ‘convenience fee’ of 7.5% on credit regardless of its duration, pushing its annualized loan rate to 395%. Tala and Branch offer annualized interest rates of 152.4% and 132% respectively.
Digital financing has however seen Kenya achieve remarkable progress in financial inclusion in the past 10 years’ courtesy of the digital lending revolution which simply requires ownership of a line and a phone. This ease of access to credit facilities has greatly contributed to rapid digital credit uptake.
However, it should be investigated if it also has negative connotations affecting the financial health of low-income households. It might seduce the poor and vulnerable youth to accrue huge debts today and occasion the loss of future borrowing opportunities. Those blacklisted by CRB are locked out of credit options now and in the future
