To achieve 100.0% Private Sector Credit to GDP, Kenya Needs Total Credit To Private Sector Of Kshs 12.1 Tn

Kenya’s domestic credit extended to the private sector as a percentage of GDP was at 32.1 percent in 2020, compared to the 38.9 percent average for the Sub-Saharan African region, 111.2 percent for South Africa, and 164.2 percent for advanced economies.

To achieve 100.0 percent Private Sector Credit to GDP, Kenya needs total credit to the private sector of 12.1 trillion shillings, current credit to the private sector is 3.4 trillion shillings, hence the current 8.7 trillion shillings deficit in credit to the private sector.

The Hustler fund, if sustainable, at 50.0 billion shillings, would only resolve 0.6 percent of the problem. The graph below shows domestic credit extended to the private sector over the years;

In 2020, Kenya’s Private Sector Credit growth at 32.1 percent of the GDP was outperformed when compared to advanced economies such as the United States of America and Japan at 216.6 percent and 192.8 percent, respectively, as well as Sub-Saharan economies such as South Africa and Mauritius at 111.2 and 95.9 percent, respectively.

The graph below shows the comparison of Kenya’s domestic credit extended to the private sector as a % of Gross Domestic Product (GDP) in 2020 against other select economies;

One of the key inhibitors to credit growth has been the failure of our capital markets. In well-functioning markets, credit comes from both banking markets and capital markets with banking markets providing 40.0% of credit and capital markets providing the majority balance of 60 percent.

However, in Kenya banks provide 99.0% of the credit, essentially, the 32.0 percent of private sector credit to GDP in Kenya all comes from banking markets with no participation from capital markets.

Key to note, individuals at the bottom of the economic pyramid have suffered more in terms of access to credit mainly because of bureaucratic measures and the need for collateral when borrowing from banks coupled with the high-interest rates charged.

When credit has been advanced by digital credit providers, it has been equally as expensive, with often punitive terms.

In a bid to address the credit gap and in line with pre-election promises, the new administration launched the Financial Inclusion Fund (Hustler Fund) on 30^th November 2022, with the fund’s main objective being to improve the credit access to citizens at the bottom of the pyramid who have often struggled to obtain affordable credit.

Key to note, the previous governments had introduced various special funds such as Uwezo Fund, Women Enterprise Fund, and Youth Enterprise Development Fund in a bid to increase credit access to various target groups.

However, the success of these funds has been crippled by low recovery rates on advanced amounts, with the recovery rate for the funds at 52.2% and 35.8% for Youth Enterprise Development Fund and Uwezo Fund, respectively.

“Only the Women Enterprise Fund has recorded a relatively high recovery rate, at 93.3 percent. Given the first component of the Hustler Fund, the personal finance loan is up and running, this week we turn our focus to the Hustler Fund to have a deeper understanding of the fund by looking at the progress it has made, potential impact, and its sustainability.”

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