Kenyans are changing the way they make big purchases, with many now turning to banks, SACCOs, and digital lenders to finance household items, cars, and electronics. This shift is creating a lucrative market for lenders, but also leaving households with significant debt obligations. The banking industry alone had Sh943.8 billion in loans to the personal and household sector by December 2024, accounting for 23.2 per cent of gross bank loans.
The personal and household sector also had more than 10.7 million loan accounts, making it the largest sector in terms of loan accounts. Consumers are using loans to purchase a range of items, including cars, phones, furniture, televisions, and refrigerators. Rian Alivisa, a resident of Nairobi, recently financed the acquisition of home entertainment appliances through his bank, saying it made the purchase more manageable by spreading the cost over several months.
SACCOs are also providing asset financing facilities for up to Sh1 million for items such as fridges, television sets, cookers, and solar systems. This type of financing allows consumers to acquire expensive goods without having to pay the full cash price upfront. However, experts warn that credit can make expensive goods more affordable, but not necessarily cheaper.
The psychological impact of paying monthly instalments rather than the full cash price can be significant, even if the final financed cost is higher. Michelle Ayanzwa, a 25-year-old who recently secured a job, purchased a new phone through a loan, saying she wanted a non-Android phone and couldn't afford to pay the full cash price upfront. Her experience highlights the growing appetite for credit to finance lifestyle purchases.
Experts say consumer and asset financing can offer lenders shorter repayment periods, identifiable collateral, and a regular stream of interest income. Unlike mortgages, which can tie up capital for many years, asset finance can generate repayments over a shorter period. However, the risk of bad loans is significant, with personal and household lending already among the sectors with significant non-performing loans.
According to the Central Bank of Kenya, personal and household loans had gross non-performing loans of Sh100.98 billion, equivalent to 14.5 percent of total banking-sector NPLs. The risk is particularly important because household income can be highly sensitive to inflation, job losses, and unexpected expenses. Simon Koech, a financial consultant, warns that financial irresponsibility can have long-term consequences.
The growth of digital lenders and other non-bank credit providers has made it easier for Kenyans to access credit, with over Sh500 billion in loans disbursed to more than eight million Kenyans. However, the consequences of borrowing can be stark when the income supporting the repayments disappears, leading to repossession of vehicles and household goods used as security for loans.
Key points
- Kenyans are increasingly borrowing from banks, SACCOs, and digital lenders to finance lifestyle purchases, creating a lucrative market for lenders.
- The personal and household sector had more than 10.7 million loan accounts, making it the largest sector in terms of loan accounts.
- Experts warn that credit can make expensive goods more affordable, but not necessarily cheaper, and that household income can be highly sensitive to inflation, job losses, and unexpected expenses.
