Kenya: The cycle of mobile app loans is costing the youth its health and finances

By Mwangi Maina
Posted on Friday, 26 November 2021 18:45, updated on Monday, 3 January 2022 16:13

Man holds up his latest M-Pesa mobile money transaction for the photographer at an open air market in Kibera in Kenya's capital Nairobi
A man holds up his latest M-Pesa mobile money transaction for the photographer at an open air market in Kibera in Kenya's capital Nairobi December 31, 2014. REUTERS/Noor Khamis

With a debt already close to 70% of its GDP, the IMF projects that Kenya plans to borrow $12.4bn from foreign sources by June 2022. This, at a time when the country is at a high risk of debt distress and subject to zero limits on non-concessional borrowing. But the distress is also having a cause and effect on its population.

According to the Central Bank of Kenya (CBK), commercial banks had 3.9 million mobile loan accounts as of April this year, with Kenyans borrowing about KSh50.6bn ($468.5m).

CBK Governor Patrick Njoroge said unregulated digital lenders disbursed loans estimated at KSh4bn within the period. “While unsupervised lending from the digital lenders accounted for less than one per cent of the banking sector’s 3.2 trillion-shilling loan book, about two million people use them, on average eight times a year.”

Kenyans getting desperate

The borrowing has been linked to economic shocks brought on by the Covid-19 pandemic, which resulted in job and business losses.

In July this year, the CBK governor told MPs that data shows about 8.3% (two million people) of Kenya’s adult population use unregulated digital credit outlets. “These are people borrowing from one platform to pay a loan [on] another platform, and we are talking about young people who are borrowing for betting,” Njoroge said.

The negative impact of Covid-19 on the private sector has trickled down to household’s welfare via reduced job opportunities and lower earnings.

Some of the apps registered by the Digital Lenders Association of Kenya — launched in early 2019 — include Finance Plan, Kuwazo, L-Pesa, Okolea, Sotiwa, Stawika, Zenka, Tala, Asante, Berry, Branch, Pesa, Quipbank (QB), UbaPesa Limited and Oye.

Leveraging credit to stay afloat

In November 2021, the association launched its first DLAK Credit Barometer Report. It said the report revealed the country’s economic health by highlighting how households and businesses are leveraging credit to navigate economic hurdles to stay afloat.

The barometer’s key findings were:

  • Majority of Kenyans (82.4%) are willing to continue borrowing digital loans to invest in businesses including stocks;
  • 62% of these borrowers go to digital lenders as their first option, then to family and friends;
  • Digital loans are helping many businesses and households to settle their bills on time.
  • The study also reportedly found that tough economic situations were the main reason why most Kenyans would miss their loan repayment deadline and that with a credit of between KSh10,000 – KSh100,000, investing in business is a top priority, while education and food come second and third, respectively.

This study was done with over 1,000 digital lending clients between October 2021 and November 2021.

The parliamentary committee on Finance and National Planning has since approved the Central Bank Amendment Bill 2021, which seeks to regulate mobile loan rates and treatment of defaulted credit to protect borrowers from predatory lending.

Safaricom PLC’s M-Shwari charges a ‘convenience fee’ of 7.5% on credit regardless of its duration, pushing its annualised loan rate to 395%, while Tala and Branch — for instance — offer annualised interest rates of 152.4% and 132% respectively.

Youth debt

Kenya’s 2019 census showed that 5,341,182 (38.9%) of the 13,777,600 youth are jobless. This was worsened by the pandemic, with more livelihoods lost.

A report by the World Bank titled ‘Socioeconomic Impacts of COVID-19 in Kenya on Households : Rapid Response Phone Survey’ confirms the limitations imposed by Covid-19 on economic activities, which hit Kenya’s socioeconomic life, resulting in income losses and increased food insecurity.

…young women and men already have less income at their disposal compared to previous young generations; they are 2.5 times more likely to be unemployed than people aged 25-64.

It also says unemployment levels almost tripled compared to pre-Covid-19. “The negative impact of Covid-19 on the private sector has trickled down to household’s welfare via reduced job opportunities and lower earnings. The unemployment rate increased from 5% in the last quarter of 2019 to 16.5% in May–June 2020.”

Additionally, the report found that the pandemic moved many adult Kenyans out of work, with the labour force participation decreasing from 75% in the last quarter of 2019 to 61% from mid-May to early July 2020.

About 30% of Kenyans, who had wage employment in January 2020, were laid off by March 2020. This further pushed young people into the debt cycle to survive and stay afloat.

Digital borrowing is not new

This is not to say that digital borrowing was not happening prior to the pandemic. According to the 2018 digital credit survey, 35% of Kenyans (roughly six million people), most of them youth, had taken at least one digital loan. The most popular applications used were M-Shwari, KCB-M-Pesa, Fuliza, Tala, Branch and Timiza.

As of February this year, 14 million Kenyans had been blacklisted by the Credit Reference Bureau, meaning they now have limited access to credit. A report by the CBK said lenders’ outstanding loans were at KSh3trn and defaults in 2021 were at KSh423bn, up from KSh352.7bn in March 2020.

Tala’s Country Growth Manager Annstella Mumbi says they provide loans ranging  from KSh1,000 to KSh30,000 and the average customer borrows approximately KSh12,000. “We have an even distribution of customers across most age groups but the majority of customers do skew between the range of 25 to 40 years old. Their borrowing patterns are not any different to our other customers.”

Asked about the rate of defaulting, Mumbi confirms that they experience this “like any other lender”, but have lowered default rates in the last seven years “to a level equivalent to that of most commercial banks in Kenya”.

She declines to disclose the number of defaults, only saying: “The vast majority of our loans are repaid”.

No options left?

In its report titled ‘Youth and COVID-19: Response, recovery and resilience’, the OECD highlights increasing levels of youth unemployment and the implications of rising debt as some of the contributing factors to mental health issues among the youth.

“…young women and men already have less income at their disposal compared to previous young generations; they are 2.5 times more likely to be unemployed than people aged 25-64,” the OECD says in its report.

WHO says the largest public mental health impact has been in the form of stress and anxiety, and predicts a rise in depression, suicide and substance use.

In Kenya, there have been suicide cases – among both the old and young – linked to debts.

  • On 17 June, The Standard newspaper reported how John Koros, 67, from Atebwo in Siongiroi, Rift valley region, committed suicide over what relatives suspected was a bank loan he was unable to pay due to economic hardships.
  • On October 2020, a blog,, reported that Solomon Ayindi, 30, from Eshiambitsi, Navakholo, Kakamega county, allegedly committed suicide on 17 October after constant pressure from a digital money lender. According to the report, Ayindi’s mother said her son had borrowed KSh30,000 and was constantly being pressured by the mobile money lender to repay, but he was unable to do so.
  • Samuel Ngari, 25, from Githumu village in Kandara, Murang’a county, is also reported to have committed suicide after he defaulted on his KSh3,000 loan borrowed through a phone app.

Living on the edge

Safaricom’s Fuliza platform has further demonstrated how Kenyans are dangerously living on debt.

The telco’s Sustainable Business Report indicates that Kenyans borrowed KSh351bn from the firm’s mobile overdraft facility in the 2020-21 financial year, a 43% rise from KSh245bn the previous financial year.

Overall, transactions stood at KSh787m in the period, up from KSh392m in 2020, a growth of almost 100%, further placing Kenyans in the distress of debt.

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