Majority of Kenyans use digital loans to settle school expenses - study

The majority of loans taken by Kenyans from digital lenders in the first six months of the year were used to settle school expenses, a study has shown.

This includes education/school fees and school supplies even as more households report an improvement in financial well-being compared to last year.

Dubbed 'Customer Barometer', the report by the digital credit provider Tala, highlights that schooling needs remained the top reason why Kenyans borrowed.

"The other top reasons that drove appetite for loans in the period under review were; buying stock for an existing business, medical expenses, emergency expenses, starting a side hustle or a business," the report reads.

Ideally, households opt for loans to cope with the high cost of living, and in the period under review, the survey shows about 56 per cent of Kenyans cut back on expenses as a further strategy to make ends meet.

"Of the total respondents, 51 per cent borrowed from digital credit providers to bridge income gaps, 31 per cent started side hustles, 20 per cent started their own businesses and seven per cent borrowed from banks," the report adds.

This is on the backdrop of the growing defaulting concern by credit providers, with the latest figures from the Central Bank of Kenya showing the lenders suffered an additional Sh148.6 billion in Non-Performing Loans (bad loans) in 2023, pushing the total to Sh651.8 billion.

According to the 2023 Banking Supervision Report by the Central Bank, the deterioration in the banks' asset quality was a 30 per cent jump compared to the previous year.

Gross non-performing loans for 2022 were Sh503.2 billion. The Non-Performing loans were concentrated mainly in the Trade, Manufacturing, Real Estate, and Personal and Household sectors, with the four sectors accounting for 72.9 per cent of total loan defaults.

Confidence

However, the survey by Tala says consumers during the first half of the year have exhibited confidence in their ability to repay loans even as they report feeling the pinch of inflation 'a little less'.

About 70 per cent of digital credit consumers said they feel confident in their ability to repay their loans as the economy crunches.

Notably, the borrowing habits remained largely the same in the period under review, as the last half of 2023, with only 20 per cent reporting to have borrowed more in the first half of this year, with the average borrowed amount being between Sh10,000 and 20,000.

The survey further reveals that customers still feel the pinch of inflation, but it is less acute in the last six months with a 20 percent drop from November 2023 to May 2024.

Despite relief at a high level, 80 per cent of Kenyans think food and grocery costs have increased in the last six months.

Generally, 83 per cent of surveyed Kenyans said their overall living expenses have increased in the first half of this year.