Digital lender, Tala records 14.2% surge in bad loans

By Victor MUJIDU

Digital lender, TALA recorded a 14.2 percent rise in bad loans in six months underlining the effects of the economic slowdown on businesses with as many customers failing to pay their debts within the billed timeframe.

“If you look at the formal banking sector which is mostly reported in terms of non-performing loans we are at about 14.2 percent currently of the disbursed loans which is a huge number hitting almost half a trillion,” said Billy Owino, Chief Executive Officer, Nimble Group Kenya.

A study by the TALA MoneyMarch report shows that many Kenyans were unable to settle their loans in the period under review due to the ravages effects of the COVID-19 pandemic among other economic challenges.

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It further noted that many customers borrow loans for personal reasons, to service their businesses, and to channel their loans in chamas for better interest rates.

However, the report established that the majority of borrowers are those with full-time jobs taking more business loans than the rest.

“Most loans are aimed at servicing business needs, for personal reasons like paying school fees while other customers channel their loans towards Chama contributions…, it would seem like consumers are taking to up-to-date loans for Chamas so that they can take loans from there as well, due to more favorable interest rates,” reads part of the report.

The report however indicates a decline from 59 percent of last year’s borrowers to 51 percent in 2023.

“The people who are in full-time have stopped investing in businesses and that has led to people borrowing less because the majority of customers who borrow from us are borrowing from businesses,” said Teddy Kahiro, User Research manager at Tala.

Further noting that “Compared to 2022, Kenyans are cutting down on spending and saving more in a bid to curb the impact of increasing inflation in their daily lives.

More generally, we are also seeing Kenyans borrowing more, and it is fascinating to note that over the last six months, consumers have channeled more of their loans to their savings such as ‘Chama’ contributions,” stated Teddy Kahiro, Senior User Research manager at Tala.

“It appears that customers are borrowing from digital lenders to help keep pace with their group contributions, underlying the need for access to affordable credit for continued financial independence during challenging economic times.”

The report cited that slightly over half of consumers have had higher spending in the past 6 months and are copying this majorly by reducing their expenses and reducing spending on luxury items.

A snowballing concern

Similar loan defaults rates continue to be seen in the banking sector with data from the Central Bank of Kenya (CBK) showing the banking sector’s gross non-performing loans (NPLs) expanded by 2.5 percent to Sh504.2 billion in October from Sh491.8 billion in September last year.

It was the first increase in bad loans since June when they rose by 6.3 percent to a record high of Sh514.4 billion from Sh483.8 billion in May.

This reverses the sharp drop in NPLs in September where they fell by the largest margin in 15 years. The dud loans had shrunk by Sh13.2 billion between August and September to Sh491.8 billion, which was the biggest monthly drop in defaulted loans since June 2007.

The decline in NPL came as lenders wrote off some billions of shillings in bad debt that they had lost hope of recovering and loan restructures that lengthened the tenure of the advances to ease the burden of repayment on borrowers.