Personal loan defaults have nearly doubled over the past three years to Sh52.3 billion in a period when Kenya’s economy has resulted in job cuts and near stagnant wages. FILE PHOTO | NMG Personal loan defaults have nearly doubled over the past three years to Sh52.3 billion in a period when Kenya’s economy has resulted in job cuts and near stagnant wages, leaving thousands of people in a debt trap.
The latest Central Bank of Kenya (CBK) data shows that defaults from personal unsecured lending jumped Sh3.6 billion in the three months to June, the biggest increase when compared to other segments like mortgages, trade and manufacturing.
Thousands of workers have taken out a combined Sh712 billion in loans, mostly without collateral, for short-term needs like buying furniture, vehicles and urgent family expenses like healthcare.
The mounting defaults are a reflection of the struggles that borrowers are facing in an economy that has witnessed a string of job losses in recent months across nearly all sectors as firms intensify austerity measures to protect their profits.
This has seen workers who had taken loans on the strength of their pay slips end up defaulting as they struggle to secure new jobs as companies freeze hiring plans.
The Sh3.6 billion jump on personal loan defaults is higher compared to a Sh1.5 billion rise in the trade segment and drops of Sh1 billion and Sh100 million in manufacturing and mortgage defaults respectively.
Ken Gichinga, the chief economist at Mentoria Economics, said that reduced cash flow in the economy has hurt companies’ sales, triggering job cuts that ultimately led to a rise in personal loan defaults.
"Many of the people who lost jobs had running loan facilities. Losing jobs with no available opportunities disrupted their income streams and defaults followed," said Mr Gichinga. "It is a case of a weak economy becoming weaker. Companies are not selling as much as they used to before and they therefore do not require additional workforce."
While the Kenyan economy expanded 6.3 percent in 2018 from 4.8 percent in 2017, private sector activity — which translates to jobs and higher pay — has remained muted. The 2019 full year growth numbers are yet to be released.
"If you look at the employment index (in the PMI) since the beginning of 2017, it’s been quite neutral, meaning it’s not like there has been improvement in new jobs," said Jibran Qureishi, the regional economist for East Africa at […]
