Kenyans shun banks over stringent loan conditions


Central Bank of Kenya
File image of Central Bank of Kenya. PHOTO| COURTESY

Kenyans are increasingly borrowing and saving through savings and credit co-operatives (saccos) and mobile money platforms than through formal banking channels.

This is according to the latest Finance Access Household Survey (FinAccess) 2019 released on Wednesday by the Central Bank of Kenya.

In the report co-authored by the Kenya National Bureau of Statistics and the Financial Service Deepening Kenya (FSD), the usage and access to mobile loan applications increased from zero per cent in 2016 to 79 per cent in 2019.

According Daniel Tallam, acting director of research at the CBK, mobile platforms were the most popular for savings amongst households then followed by saccos. This is due to perceived inefficiencies in the banking system and lack of regular income.

“Some also avoid bank services due to poor services offered by the banks, ATM services not working and also some unexpected changes,” he said.

The report further says over 60% of Kenya surveyed still use informal loan solutions like chamas, borrowing from friends and family as saving cash at home.

During the period, the survey notes that uptake of mobile banking went up 6% to 10%. The latest Communications Authority of Kenya industry statistics indicate that there are 31.6 million mobile money subscriptions in the country.

“Mobile money is important for bill payments and nearly half of internal remittances are digital,” added Tallam.

Borrowings from commercial banks have gone down at the household levels have been going down especially in the last three years.

This due to laws capping interest rates charged by lenders introduced in September 2016. Then Members of Parliament passed a law putting a ceiling of not more than 4% above the Central Bank benchmark Rate.

The report also says that daily transactions among those surveyed were largely by cash at 98 per cent. Additionally in the absence of cash, they preferred bank transfers over mobile money especially when paying school fees. 

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