Loan Crisis: 48.5% of Kenya's Middle-Class Unable to Repay

  • Auctioneers mallet.
    Auctioneers mallet.
  • At least 48.5% (almost half) of Kenya's middle-class are unable to service their loans, a November 2020 report dubbed Indebtness Survey carried out by Collect Pro has revealed.

    The survey targeted 221 households with a Daily Per Capita expenditure of above Ksh 2,187.60, which can therefore be referred to as Upper Middle Class.

    According to the Kenya National Bureau of Statistics (KNBS), a Kenyan middle class person spends between Ksh 23,670 and Ksh 199,999 each month. 

    The Institute of Economic Affairs (IEA) found that there are about 272,569 middle class wage employees in Kenya.

    File image of Kenyan banknotes
    File image of Kenyan banknotes

    In the latest indebtness report, the bulk of the loans (31.2%) for the respondents ranged between Ksh 1 million and Ksh 10 Million.

    "The Central Bank of Kenya (CBK) has said that banks have restructured loans worth Ksh1.12 trillion or 38% of the total loan book by end of August 2020. Personal and household loans top the list, with Ksh 271 Billion reviewed since March 2020, or a third of the total loans whose terms have been changed," reads and excerpt from the report.

    The global Covid-19 pandemic has led to massive job layoffs in Kenya, with an estimated 1.72 million Kenyans axed in the 3 months to June 2020.

    The Federation of Kenya Employers (FKE) Survey released on August 2020 puts job losses due to Covid-19 at 80% of the formal private sector jobs created between 2015 and 2020.

    Worryingly, the latest report revealed that of the middle-class population currently struggling to repay their outstanding loans, 10% are completely unable to pay a single shilling, with another 13.6% falling significantly behind in their payment obligations.

    A quarter of the respondents (24.9%) said they are slightly behind in their loan servicing obligations.

    These are all indications that commercial banks will experience a significant increase in the number of loan defaulters as the global coronavirus pandemic affects virtually all sectors of its economy.

    A Survey by Kenya Bankers Association (KBA) titled Spillovers and Feedback Loops: The Banking Industry’s Response Scenarios to the Effects of Covid-19 Pandemic, outlines that 65% of banks expect non-performing loans (NPLs) to increase to 14% from the current level of 12.4%.

    To cushion borrowers, the CBK announced that all loans as of March 2, 2020, would be eligible for short repayment holidays or rescheduled payments of up to a year.

    However, this has turned out to be a poisoned chalice for some as banks appear to have taken advantage of a broad guideline by the CBK, which allowed the lenders to restructure loans by either freezing interest payments, or fees, or offering a moratorium on interest or the principal repayments.

    Thousands of Kenyans have since come forward revealing how banks have since written to them demanding interest accrued during the repayment holiday period.

    "The bank explained they had been loading up interest during the six-month period and this means I will end up paying up to Ksh 24,000 more," one of the thousands of Kenyans who shared their current loan dilemma told the media.

    Latest Covid-19 statistics paint a grim picture, with the Market Analysis Report July-October 2020, stating that Kenya’s economy contracted by 5.7% in the second quarter of 2020, resulting in an average -0.4% half year growth rate.

    Central Bank of Kenya (CBK) building in Nairobi.
    Central Bank of Kenya (CBK) building in Nairobi.
    Simon Kiragu