Average size of home loans nearly halves in four years
In 2023, individual Kenyans borrowed an average of Sh14,461, a 41 percent drop from the average of Sh24,606 taken from lenders just before the pandemic in 2019, a new report by Financial Sector Deepening (FSD) Kenya shows.
The average size of loans taken by Kenyans has nearly halved in the aftermath of the Covid-19 scourge, signalling a go-slow by risk-averse lenders and a population desperate for cash to survive in a tough economy.
In 2023, individual Kenyans borrowed an average of Sh14,461, a 41 percent drop from the average of Sh24,606 taken from lenders just before the pandemic in 2019, a new report by Financial Sector Deepening (FSD) Kenya shows.
The study co-authored by CreditInfo Kenya – a credit reference bureau – and the Credit Information Sharing Association reveals that the drop was despite a near doubling of the number of loans disbursed over the period, which rose 66 percent to 62 million last year, up from 37.4 million in 2019.
Households cumulatively borrowed Sh898 billion in 2023, a three percent decline from the Sh922 billion borrowed in 2019, but the rise in the number of loans taken means that more people took small loans which can only be for meeting daily needs.
“The observed decline in the average loan value to individual borrowers suggests that the growth in the number of borrowers seen is primarily driven by the proliferation of low-value digital loans,” said the study published this week.
Digital loans, which are normally quickly accessible, short-term, and unsecured, dominate the loans taken last year, accounting for about 91 percent of all loans disbursed, up from 88.8 percent in 2019, another indication that the majority of Kenyans are taking loans to survive.
A Financial Services Survey published by Old Mutual Group in February revealed that at least 38 percent of Kenyans are taking loans to meet every day needs like food, shelter, or clothing, while another 33 percent borrow to meet unexpected needs like school fees, medical bills, and household repairs.
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But businesses aren’t having it easy either. Last year, the value of loans extended to companies shrunk by nine percent to Sh1.04 trillion, from Sh1.15 trillion in 2019, while the number of loans taken rose 11 percent to 1.3 million from 1.1 million.
On average, the loan value for companies also declined, from Sh10 million per loan in 2019 to about Sh8.2 million per loan in 2023, a drop of about 18 percent, signalling a slowdown by lenders.
The cutback by banks can be attributed to the high rate of defaults on loans that have hit the country, coming amidst the high interest rates occasioned by the Central Bank of Kenya’s tight monetary policy that saw loan rates go as high as 26 percent in some banks.
As of March, the total value of non-performing loans (NPLs) had hit a record Sh641 billion, the highest amount in over 2 years, coming shortly after the CBK raised its policy rate to 13 percent, the highest rate in 12 years.
According to the FSD Kenya report, the majority of borrowers who were blacklisted by different credit reference bureaus for delayed repayment had outstanding loan amounts of between Sh1,000 and Sh5,000.
