Kenya’s Lending Landscape Sees Surge In Mobile Loans As Overdrafts And Asset Finance Tightens

The consumer lending market in Kenya reflected a mix of resilience and optimism in the first quarter of this year, according to TransUnion Kenya’s Q1 2024 Kenya Market Analytics Report. This has come on the back of lenders, equipped with deeper insights and advanced tools thanks to the evolving regulatory environment, becoming better positioned to meet the demands of a dynamic and evolving consumer market.

During the first quarter, the Central Bank of Kenya (CBK) raised the Central Bank Rate (CBR) to 13.0%, up from 12.50% in the previous quarter. The Kenyan Shilling (KES) continued to depreciate against major international currencies during the same quarter, further influencing the local credit environment.

“Q1 2024 could be defined as a quarter of expectation. We anticipated a return of investor confidence and an increased appetite for lending. To this end, active accounts grew by a small margin of 0.2% quarter-over-quarter (QoQ), but with a significant year-over-year (YoY) growth of 20%. This reflects a cautious optimism among lenders as they started to regain confidence in the market,” says Morris Maina, CEO at TransUnion Kenya.

Continued growth in mobile loans

Mobile loans remained the most common form of credit in Kenya, accounting for 52.79% of all active loan accounts with a total balance of KES 158.8B. The first quarter of 2024 saw the opening of 3.92M new mobile loan accounts, an 11.02% increase from the previous quarter. However, the average quarterly borrowing limit per borrower decreased by 7.48% from KES 16.86K to KES 15.6K, indicating a measured approach by both lenders and borrowers in the first quarter’s economic climate.

The evolving regulatory environment played a role in contributing to more people applying for mobile loans, with licensed FinTechs now submitting data to TransUnion. The result is better insights into the overall market and the health of consumers, enabling lenders to make better-informed decisions on credit applications.

Low-value overdrafts (ODs) — the lifeblood of accessible credit in the Kenyan market — represented a significant 32.81% of all active loan accounts, with over 9.84M active accounts holding a balance of KES 34.69B at the end of Q1 2024. The first quarter 2024 dip in low-value ODs originations saw the volume of new accounts opened retracting to 5.36M, a 40.29% decrease from the 8.97M in the previous quarter.

There was also a 32.57% drop in the value of new, low-value ODs booked to KES 4.5B from the previous quarter’s KES 6.68B. The average quarterly limit increased by 12.93% from KES 745 to KES 818.

The quarter marked a contraction in unique borrowers of low-value ODs to approximately 7.60M from 8.02M (-5.14%) the previous quarter.

High-value overdrafts reflected a tightening of credit

High-value ODs, while comprising a small percentage (1.89%) of all active loan accounts, held a significant balance of KES 499.1B. The first quarter of 2024 saw a 25.3% reduction in the number of new high-value overdraft accounts, with the value of these overdrafts decreasing by 17.55% to KES 29.36B. This trend suggests tighter credit conditions and more selective lending practices in this segment.

The banking sector remained the backbone of Kenya’s credit market and held more than 96% of all loan balances, accounting for 27.18M active accounts. Even though there was a slight decline in the number of new accounts opened, the sector’s dominance underscores its critical role in providing credit to both consumers and businesses.

Increased new asset finance limits

Asset finance is a niche product and comprised 0.32% of all active loan accounts in Q1 2024 — just 97.41K — but it made up a balance of KES 200.77B and continued to play a critical role in the economy. The first quarter of 2024 saw a significant 27.06% drop from 6.66K accounts opened in the previous quarter to 4.86K accounts. Additionally, the total value of new asset finance booked receded 22.78% to KES 12.84B from KES 16.63B. Nevertheless, the average quarterly limit grew 5.86% from KES 2.5M to KES 2.64M.

Millennials continued emergence as a driving force in credit

Millennials (25-45 years old) accounted for a substantial portion of the principal amounts across several loan categories, including mobile loans (51.1%), personal loans (49.6%), and asset finance (16.5%). This demographic’s strong presence underscores the need for financial institutions to innovate and provide products that cater to the unique preferences and behaviours of younger borrowers.

“Kenya has a dynamic and evolving lending market, with diverse credit products and solutions available that respond with agility to consumers’ and businesses’ needs,” says Maina. “While some challenges remain, efforts towards extending financial inclusion even further, along with technological advancements, are shaping the country’s future credit market.”

The TransUnion Q1 2024 Kenya Market Analytics Report provides an in-depth analysis of the macroeconomic environment and its influence on credit trends within the country.

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