In any country, access to loans and lines of credit is a sign of a strong, healthy economy and an indicator of future growth. Stronger growth helps lift more people from poverty as opportunities for employment rise, so close attention to credit access is crucial to monitoring the fight against poverty.
Many ordinary citizens have struggled to get credit access in Kenya, but new technologies are narrowing the gap. This points to a better future for finance in the East African nation.
Lack of Credit Access in Kenya
By some measurements, the Republic of Kenya’s economy has the largest GDP in East and Central Africa, owing no small part to its capital city, Nairobi, a regional commercial hub. But the nation suffers from its poor formal credit access for poor rural and urban populations, and small- and medium-sized businesses (SMEs).
As recently as 2009, only 39.6 percent of Kenya’s adult population had access to credit. As the costs of living have risen in Kenya, this lack of access can accelerate poverty levels. But the good news is, recently, the growth of new options like mobile lending have boosted credit access in Kenya.
The Mobile Lending Boom
According to Kenyan newspaper Business Daily Africa, lending via mobile phones has boosted credit access in Kenya six times over the past seven years. This conclusion comes from research done by the Standard Investment Bank.
The number of persons or households with loan accounts rose to 7.2 million between 2010 and 2016. The expansion of credit comes as mobile phone banking solutions have reached those who were left out of banking services due to their lack of traditional credit histories.
Warning Signs and Course Corrections
Although increased credit access is in many ways a good development, Business Daily Africa writes that defaults on loans rose 42.4 percent in 2016, likely the result of a softening job market in the country. A second Kenyan paper, the Daily Nation, suggests that the inability of entrepreneurs and SMEs to get loans via traditional banks is playing a role in this issue.
If Kenyan banks can correct their courses and find a way to make the traditional system work in a responsible way for the nation’s rural and urban poor, the loan system will hopefully stabilize, and non-performing loans will shrink as a percentage of total loans in Kenya.
– Chuck Hasenauer