Editorials

Endless debt trap must be addressed quickly

debt

Borrowing to gamble or to settle previous debts cannot help an economy to grow. FILE PHOTO | NMG

Revelations that one in every five borrowers in the country have defaulted on a loan in the past one year are indeed quite shocking.

It is also a wake-up call that a nascent economy like Kenya’s can ill afford to have such a large number of people in an endless debt trap.

According to a survey by the Financial sector Deepening, farmers who form the bedrock of the country’s economy are the worst hit by the debt crisis.

Also trapped in the debt cycle are low income households and employees.

It is quite clear from the demographics that the debt crisis affects a large proportion of our society and something must be done quickly to alleviate it.

While the government itself has been accused of embarking on an endless pursuit of external loans, one must wonder who will save this hapless borrowers if they have nowhere to turn to for help.

It is alarming to learn from recent reports that a majority of borrowers have been blacklisted by the credit reference bureaus for defaulting on what would largely be deemed as very negligible amounts.

Time has come to put a stop to the borrowing binge that has become entrenched in the country. This calls for soul searching among the general society and government so as to come up with long-term solutions to the problem.

Borrowers of personal loans and small business owners contributed nearly half of the Sh264.6 billion stock of bad debt held by banks while mobile digital lenders have also advanced billions of shillings to private borrowers thus adding to the household debt burden.

What we must not forget is that the economy cannot grow if a majority of the population are trapped in a cyclic debt trap.

Many borrowers end up defaulting and being blacklisted since they borrow from one lender to pay another and it becomes hard to end the ruthless cycle.

According to the survey, this includes being over-leveraged and selling assets borrowing and cutting expenditure to repay loans.

Another study by FSD-Kenya last year had found that about 6.5 million Kenyans were digital borrowers with 31 percent using the cash on betting platforms.

Borrowing to gamble or to settle previous debts cannot help an economy to grow, but will only spur its stagnation. The time to act is now.