This archive report was first published on 16 August 2019.
Kenya's economy has been growing at an average of five percent per annum over the past four years, but the growth has been overshadowed by a steady fall in corporate profits, stagnation in workers' incomes, and a series of employee retrenchments that have slowed down small businesses.
According to a recent survey by the Financial Sector Deepening (FSD) Kenya, one in every five borrowers in the country has defaulted on a loan in the past year. The survey, which was backed by the Central Bank of Kenya (CBK) and the Kenya National Bureau of Statistics (KNBS), found that farmers, low-income households, and employees are the worst-hit by the debt crisis.
The FSD study revealed that levels of debt stress are high across the board, 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.
CBK data shows that 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. Mobile-based digital lenders such as Tala, Branch, and OKash have also advanced billions of shillings to private borrowers, adding to the household debt burden.
Personal loan borrowers and traders defaulted on Sh121.4 billion debt in 2017, accounting for 45.89 percent of the industry total, according to the banking sector regulator. The FSD study says over half of the borrowers have had to sell assets, borrow, or reduce their expenditure to repay their loans.
Two-thirds of borrowers in the country have experienced at least two symptoms of debt stress, including default, being over-leveraged, and selling assets. The wealthy have not been spared from debt stress either, with a third of wealthy borrowers having debt service payments of over half their monthly expenditure.
The CBK data paints a picture of households and small traders who are taking loans that they are unable to service. The report also captures businesses that are struggling to stay afloat and others whose operations have grounded to a halt following failure by the national and county governments as well as private sector customers to settle their dues.
