The load of household debt taken up by formally employed Kenyans has more than doubled since 2010 driven by improved access to financial services through mobile technology, a new survey shows.
The survey by city-based research firm HTM Capital estimates that the total debt rose from Sh413 billion in 2010 to Sh907 billion by the beginning of this year, while the average debt for a household that has an income of Sh100,000 per month increased from Sh409,698 to Sh731,979.
Kenyans have found it easier to borrow as banks continue to adopt mobile-based lending, which offers small denomination loans that are accessible to the majority of the lower income segment of society.
Banks have also diversified their credit products, allowing more people to access loans, while major supermarkets are also offering credit terms.
The lowering of the maximum chargeable rate on bank loans has also given borrowers room to refinance their loans upwards, even though this is balanced out by banks raising their risk profiling of borrowers.
“We estimate Kenya’s household debt-to-income ratio stood at 60.6 per cent in 2015 — an increase from 51.9 per cent in 2010, but a slight decline from 61.9 per cent in 2014. The drop in Kenyan households’ debt to income ratio in 2015 was driven by income growth,” said HTM capital in the survey report.
Between 2010 and 2015, HTM estimates, annual household income for persons engaged in formal employment increased to Sh1,497.3 billion from Sh796.4 billion.
HTM says, therefore, that households on average have the capacity to increase their debt levels by an additional Sh240,391 to Sh972,370, especially with the rate cap that came into effect in September.
“At prevailing debt levels, our analysis shows the private sector (households and businesses) has headroom to increase debt driven consumption expenditure, which augurs well for economic growth — more importantly, since the private sector is not over-indebted, economic risk arising from systemic debt defaults is muted,” reads the report.
The HTM survey also found that commercial banks are the source of three-quarter of the loans taken by households, meaning that rate cap is likely to have a real impact on household finances.
However, the average size of a bank loan has fallen as lenders expand their reach across the market, to Sh126,324 from Sh216,585 in 2010 among the formally employed.
Due to the increase in the number of mobile phone loan accounts, HTM estimates that the average bank loan size for persons not engaged in formal employment declined to Sh18,983 in 2015 from Sh102,593 in 2010.
Although access to credit has gone up since 2010, this year has seen a trend of falling private sector credit growth, which if it persists could slow down the momentum recorded between 2010 and 2015.
Central Bank of Kenya (CBK) latest data shows that 12-month growth in private sector credit slowed to 4.6 per cent in October, having stood at 11.1 per cent in May.
The CBK says the slowdown draws from structural issues in the banking sector, such as uneven distribution of liquidity and businesses reducing overdraft facility use due to uncertainty ahead of the elections.
Private sector credit drives economic growth, meaning that the slowdown could be a threat to Kenya meeting its target of achieving above six per cent growth in the medium term despite CBK governor Patrick Njoroge downplaying the impact.
Overall, banks have lent the private sector Sh103 billion less this year than in 2015, with private households, manufacturing, business services and mining recording a decline in credit uptake while finance, real estate and transport are the only sectors to record an increase.