Shopkeepers are the most popular sources of credit for Kenyans, ahead of banks, cooperatives and other mainstream financial service providers.
According to a new report by Financial Sector Deepening (FSD), shopkeepers are a preferred option for many Kenyans when it comes to taking credit. The 2016 FinAccess Household Survey said 9.9 per cent of the people who took part in the study said they accessed credit services from their neighbourhood kiosk.
Mobile bank accounts and Saccos are also popular sources of credit, with 5.6 per cent of the people surveyed saying they rely heavily on mobile bank accounts such as KCB M-Pesa, MCo-op Cash and M-Shwari. Five per cent said their main source of credit were Saccos where they hold membership. Families and friends are also an important source of credit at 6.6 per cent.
Just 4.4 per cent said they relied heavily on banks for their credit.
The survey however shows that while the shopkeeper remains a popular source of credit, the popularity has been on a decline as more people turn to formal financial institutions for loans. In 2006, 22.8 per cent of the people that participated in the survey by FSD said they got much of their credit from shopkeepers.
“While shopkeeper credit has reduced substantially since 2006, it still remains, by far, the most widely used source. The most popular sources of formal credit are mobile bank accounts and SACCOs,” said the FinAccess Household Survey.
Other than taking basic household goods on credit from the shopkeeper, Kenyans also tend to take soft loans in cash, all of which are repaid when the borrower gets access to money. It is a popular case for salaried folks in urban areas who tie repayments of such debts to their pay at the end of the month.
The transactions are largely based on trust and relations, as opposed to having collateral against which one borrows against.
FSD survey paints a worrying picture of credit consumption at the retail level, with most people borrowing to meet their day to day needs. More than half (57 per cent) of the people taking credit do so to buy basics while only a paltry 15 per cent are borrowing for business purposes. Some Kenyans (2.6 per cent) said they have run out of options and had to sell assets to repay loans.
“By far, the most common reason for taking credit is for meeting day-today needs. Financing education also drives use of credit while just over a quarter of users take loans to support their business and agricultural activities,” said the survey.
“Wealthier Kenyans are more likely to refinance a loan through borrowing. On the other hand, a number of poorer Kenyans have to sell their assets to repay loans.”