Kenyans ditch shopkeepers, turn to banks for small loans

CBK Governor Njuguna Ndung’u (right) and David Ferrand, director Financial Sector Deepening Trust (FSD), during the launch of the FinAccess 2013 Report at the Serena Hotel in Nairobi October 31, 2013. Photo/Salaton Njau  Nation Media Group

By GEOFFREY IRUNGU

In Summary

• The shopkeeper, friends, relatives, neighbours and informal money lenders are no longer the main sources of credit for the millions of small borrowers — the majority having moved on to microfinance institutions, commercial banks and credit cards.
• The report that was released Thursday shows that only six out of every 100 Kenyans still borrow from informal sources down from 24 out of every 100 Kenyans who relied on the informal lenders seven years ago.
• Prof Ndung’u said more people are now able to access and use financial services and products supplied by diverse institutions, ranging from telcos and banks to Saccos and microfinance institutions.

Kenyan consumers scaled the ladder of maturity in the past seven years shedding old personal finance habits in favour of the more sophisticated ones, a newly released report indicates.

The shopkeeper, friends, relatives, neighbours and informal money lenders are no longer the main sources of credit for the millions of small borrowers — the majority having moved on to microfinance institutions, commercial banks and credit cards, the survey by the Central Bank of Kenya and Financial Sector Deepening (FSD) Trust found out.

The report that was released Thursday shows that only six out of every 100 Kenyans still borrow from informal sources down from 24 out of every 100 Kenyans who relied on the informal lenders seven years ago.

“These findings demonstrate the impressive achievements so far realised in financial sector deepening and vindicate the government’s recent reform efforts and innovations by the financial sector players,” said CBK Governor Njuguna Ndung’u at the launch of the report.

The survey, which was conducted early this year, found that nearly four in every 100 people currently take loans from a commercial bank, having more than doubled from the two out of every 100 who borrowed from the lenders in 2006.

The report also shows that nearly two people out of every 100 own a credit card compared to seven years ago when the number stood at less than one (0.8) in every 100.

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The decline in the importance of informal lenders, including the shopkeeper, as a source of credit is also in line with the ongoing positioning of supermarkets and malls as the main sources of consumer goods for a large segment of the Kenyan population, reducing the importance of small shops and kiosks.

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Most consumers use credit cards or hire purchase facilities to buy goods from the retail chains.

Loans from clubs of fellow investors (popularly known as Chamas) that were hardly on the radar seven years ago have become a source of credit for nearly four out of every 100 people, the report says.

Ultimately, the proportion of consumers using informal financial services has declined to 7.8 per cent from 26.8 per cent in 2009 and 35.2 per cent in 2006.

Prof Ndung’u said more people are now able to access and use financial services and products supplied by diverse institutions, ranging from telcos and banks to Saccos and microfinance institutions.

“This means people are moving towards using a broader portfolio of financial services and products to satisfy their needs. The use of a combination of financial services has been rising,” he said.

Lisa Phillips, the head of UK’s Department for International Development (DfID), Kenya office, said technology was responsible for a lot of the successes in increasing access to financial services for the majority of the population.