New reasons Kenyan middle-class are flocking lending Apps in droves

By Steve Umidha

Working middle-class Kenyans are paying a heavy price for having to protect their elders and relatives, a new study has shown.

The survey by financial services firm, Enwealth, Saving and Investments Behavior among Kenyans, highlights a widespread financial anguish among generation Z and millennials who are now forced to seek financial rescue from mobile money lending Apps to withstand pressure from relatives.

What’s worse, the report’s drafters believe that tough economic times and reduced employment opportunities could further see more Kenyans drained of their last savings if current conditions persist.

Those concerns, according to the survey, are now used to explain the low savings culture among younger generations, with a staggering 68 percent of those who took part in the survey confessing to applying for mobile loans like Fuliza, to look after their relatives.

An estimated 57 percent of respondents who applied for such loans indicated it had a negative impact on their saving habits, with 20 percent of such individuals earning a meagre monthly income of less than Sh30, 000. About 23 percent of such respondents take home monthly wages ranging between Sh30, 001 and Sh60, 000 – who are forced to borrow to complement their basic obligations.

“About 83 percent of those who do not save attribute it to recurring expenses and inadequate disposable income while 84 percent of the working population regularly send money to their extended family for daily upkeep such as food, transport and medical expenses,” noted Enwealth’s Chief executive Simon Wafubwa, who recommended tax reliefs to the informal sector as an incentive to boost the savings culture.

The review by Enwealth, according to Duncan Motanya –Chief executive of Zenka – a mobile lending App, represents a surging need for quick loans among Kenyans who have continued to rely on such platforms to meet their day to day financial commitments.

The need for such options, he says, has been heightened by the increasing poverty levels in most Kenyan households which jumped by 4 percentage points, an equivalent of 2 million additional households that were impacted by Covid-19 leading to sharp decreases in incomes and employment when the pandemic hit.

Kenya’s economy continues to suffer from COVID-19 ravages, severely affecting incomes and jobs particularly the youth.

“The proposed adjustments in the industry by the Central Bank of Kenya (CBK) is a welcome move which gives us hope as operators in this space. Availability, affordability and convenience in terms of repayment of such loans will play a crucial role in the sector’s growth amid a growing demand as highlighted in that survey” said Motanya in a telephone interview.

CBK had in March gazetted the digital lenders regulations paving way for their oversight and supervision – whose intentions are to among other factors, address high-interest rates, unethical debt collection practices, as well as the misuse of personal data by some digital lenders.

The Digital Credit Providers regulations also seeks to fix public concerns given the significant growth of digital lending, ordinarily offered through mobile phones.

Digital lending is projected to emerge stronger in the post pandemic era, according to industry trends by the Digital Lenders Association of Kenya (DLAK) which is attributing the likely surge in the usage of digital credit to the growing number of Kenyans choosing to use such platforms for their daily transactions.

Figures by DLAK expects the 92 percent of Kenyans who don’t see high interest rates charged by digital lenders to increase in the post Coronavirus period. It is estimated that just 8 percent of Kenyans consider high interest charged as a factor when borrowing.

Industry data shows that there are a total of 49 digital credit providers operating in Kenya today with M-Shwari accounting for 29 percent of the local market share, followed by KCB M-Pesa at 12 percent, then Equity Eazzy, Tala and MCo-op Cash at 4 percent, 1.8 percent and 1.3 percent respectively.