70 percent of bank customers ‘are living beyond their means’

Seven in every ten Kenyans who have access to formal banking services spend more money than they make each month, putting them in a state of permanent indebtedness.

This is according to the findings of a survey conducted by research and consulting firm Infotrak, which reveals that 70 percent of banked Kenyans consider themselves to be in debt and living beyond their means.

“A significant proportion of the Kenyan population is experiencing severe debt distress,” says Infotrak in the report that provides new insights into the financial hardships that Kenyans are facing.

The poll says Kenyans have borrowed enormous sums from local banks to finance lifestyles they can not afford.

It also says Kenyan families say they feel unprepared for a financial emergency, meaning they fear plunging into poverty in case of sudden economic shocks such as loss of job or sickness.

"Most middle-income households are currently living beyond their means, spending more than they earn as the cost of living and expenses grow at a faster pace than their incomes do," says the study.

The research was conducted through face-to-face computer assisted personal interviews within the banking halls of sixteen un-named commercial banks in Nairobi, said Infotrak.

Seven microfinance banks also participated in the survey.

"Simply put, many Kenyans are financially vulnerable and two or three pay days away from pecuniary disaster."

Kenya’s economy has grown at an average of five percent per annum in the past four years, but the growth has been overshadowed by a steady fall in corporate profits, a stagnation in workers’ incomes and a series of employee retrenchments that have slowed down small businesses.

Spikes in prices of maize flour, beans and green grams among other foodstuffs pushed inflation to 5.7 percent in June, wiping out the temporary benefits on the cost of living brought about by recent rainfall. This was a slight increase from the 5.49 percent recorded in May.

The Kenya National Bureau of Statistics (KNBS) last month reported that even though prices of vegetables like spinach, kales and tomatoes recorded a decrease by 2.42, 6.87 and 0.36 percent respectively in June, prices of maize, beans, green grams and sifted maize flour were on the increase.

Financial vulnerability is described in the survey, as "lacking the liquid financial assets needed to maintain one’s living standard for at least three months, should one lose their job."

The research says about six out of 10 Kenyans with bank accounts are using Financial Technology (Fintech) platforms, which the popular digital lending apps broadly fall under.

The survey links debt distress by Kenyans mainly to lack of consumer awareness, stacking loans from different lenders and defaulting on repayment, leading to negative listing by Credit Reference Bureaus (CRBs).

"There is a growing sense in which the crisis precipitated by the negative listing by CRBs of defaulters now requires immediate legal and policy interventions," says the survey.

A recent similar survey by the Financial Sector Deepening (FSD) showed that one in every five borrowers in the country has defaulted on a loan in the past one year.

The FSD survey, which had the backing of the Central Bank of Kenya (CBK), showed that farmers who form the bedrock of the country’s economy are the worst-hit by the debt crisis.

Also affected are low-income households and employees whom the survey shows are living in a debt cycle.

"Levels of debt stress are high across the board but particularly for farmers, the elderly and the poor. For these groups, difficulties in repaying loans resulted in asset sales, cutting back on expenditure, or borrowing to repay existing loans," said the FSD Kenya study.

CBK data shows commercial banks had total outstanding loans of Sh2.7 trillion as at the end of May this year, of which Sh430.1 billion was lent to private households.