61.6 percent of Kenyans Get Loans from Informal Sources

Data from the Kenya Integrated Households Budget shows that 61.6 percent of Kenyans in the working age get loans from informal sources.

According to the survey, this is represented by a total of 15.4 million Kenyans in the working force.

The survey reveals that those getting loans from local shops or kiosks account for 28.2 percent, represented by 7.05 million people.

Those getting credit advances from Chama totaled 19.4 percent or 4.85 million people to be exact while 14 percent – 3.5 million individuals – get them from friends, neighbors, and relatives. Only 8.8 percent get loans from commercial banks.

“We are yet to understand why commercial banks among other formal sources of credit are not the number one institutions for credit,” said Zachary Mwangi, the Kenya National Bureau of Statistics director general.

The research represents the first phase of the analysis. Mr. Mwangi added that an in-depth analysis of why formal sources like banks are not preferred by many will soon be carried out.

Habil Olaka, the Kenya Bankers Association chairperson, attributed the high appetite of credit from informal sources to lack or unsatisfactory financial track record provided to formal sources.

“If one is not dignified it becomes hard for commercial institutions to advance them loans for lack of lending base or financial statements to prove their ability to repay the loan after the specified period. Furthermore, those with no financial records and new ventures are likely to be denied credit by financial intuitions unless they proof creditworthy,” Olaka said.

The survey also stated that 11.2 percent of the working force got loans from SACCOS, 7.6 percent from mobile platforms, and 5.3 percent from micro-finance institutions.

Additionally, between 1.2 and 1.3 percent of the 25 million base population of the working population get loans from government funds, NGOs, and employers among other formal institutions.

This follows another finding by the report that at least 20.3 million out of the estimated 45.37 million Kenyans are poor. Only 16.4 million of the 20.3 million Kenyans are considered generally poor while 3.9 million Kenyans are considered extremely poor.