One in every three Kenyans with an outstanding loan has been forced to borrow from another source to repay their other loans as hard economic times push more people to default on their obligations.
Nearly 60 percent are raiding their savings to avoid falling behind on their loan repayments.
This year, the percentage of indebted Kenyans borrowing to repay their loans increased to 32.7 percent, up from 29.6 percent in 2021, surpassing starting a business or working longer as a strategy for dealing with their debts.
This is amidst a surge in default rates, as the proportion of individual borrowers defaulting on their loans increased from 10.7 percent in 2021 to 16.6 percent this year, according to the latest Financial Access (FinAccess) Household Survey.
“Debt distress is a major challenge, with 16.6 percent of borrowers completely defaulting on their loans (did not pay at all) compared to 10.7 percent in 2021,” reads the report done by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics, and the Financial Sector Deepening (FSD) Kenya.
Besides those that didn’t service their loans at all, about 37.2 percent of Kenyans paid late or less than expected, meaning that less than half of individual borrowers in Kenya are timely servicing their loans currently.
Latest data from the CBK also shows that compared to last year, the non-performing loans (NPLs) in the banking sector increased from 15 percent to 16.5 percent, as Kenyans defaulted on loans worth about Sh670.5 billion worth of loans.
This is amidst the high interest rates charged by both commercial banks and other financial institutions, occasioned by the tight monetary policy by the CBK that has marked the last two years in the country.
According to the report, other than the debt rollover, another popular strategy used by Kenyans to avoid defaulting is raiding savings to repay their loans, which is currently being used by 58.8 percent of borrowers, up from 43 percent in 2021.
This could be one of the reasons the saving rate declined from 74 percent in 2021 to 68.1 percent this year, the first drop in 15 years, while borrowing escalated to 64 percent of the adult population from 60 percent.
A higher number of borrowers also resorted to cutting their expenses on food (58.7 percent, up from 38.9 in 2021) and on non-food household items (50.2 percent, up from 40.6 percent in 2021).
However, those choosing to sell their assets as a strategy to repay their debt declined from 22.1 percent in 2021 to 13.9 percent currently, while those opting to start a business or work longer hours dropped from 33.9 percent in 2021 to 31.9 percent.
