Demand for loans to soar as more borrowers push for moratorium

By Steve Umidha

Consumer demand for credit is likely to soar in the coming weeks leading to December festivities according to financial expectations – with the belief that many Kenyans will continue to borrow but their ability to do so will be limited.

“It is a trend you can trace from the last few months since the pandemic hit, it will continue to the last day of the year and beyond,” says the Chief executive of Gulf African Bank, Abdalla Abdulkhalik.

Stress in the financial sector has soared since the coronavirus pandemic hit in March with about 70 per cent of borrowers seeking moratorium on loan repayments as their incomes dipped and savings were eroded.

The jump in the uptake of the loans emerged in a period when the economy shed more than two million jobs on the back of sluggish corporate earnings in the wake of Covid-19 economic hardships brought by lockdown restrictions and closure of several workplaces.

With most Kenyans still out of work and several others operating on pay-cuts and reduced earnings, demand for loans and especially small loans will spike in the next two months with looming December festivities and possible full reopening of schools in January 2021.

As a result, Mr. Abdalla says local banks and other micro financial institutions will continue offering extended capital relief to struggling businesses and individuals hit by the coronavirus pandemic for a protracted period.

The Central Bank in March – just after first restriction measures were out in place, directed SMEs to contact their banks for assessment and restructuring of loans based on their circumstances – in a swift move that saw all lenders activate such plans, initially on a three-month moratorium agreements to their customers – but the repayment holidays for most borrowers were extended to September.

The banking industry, which has been touting its capital levels as robust will see many of its prospective customers not qualifying because they are out of a job and those who do get approved will pay double or triple-digit annual percentage rates.

“From a small one-third seeking moratorium when the CBK gave the directive in April, we now see almost two-thirds seeking it. It clearly shows depletion of household savings in the last 6 months despite the reopening of the economy,” says Kamau Macharia, a former banker and financial expert.

The number of borrowers seeking moratorium is growing day by day according to the Chief executive of Jijenge Credit Peter Macharia, who says most of these borrowers now want to hold back whatever liquidity they have with no or less cash flow – with the bottom of the pyramid borrowers are also in search of fresh dose of loans to resume their businesses.

Indeed, available data released on Monday further explains the increasing appetite for borrowing this year with Safaricom subscribers for instance more than doubled their borrowings from the overdraft service Fuliza in the six months to June at a time when the country had imposed various lock-down measures that led to layoffs and pay cuts.