Recent data from the Central Bank of Kenya (CBK) shows a significant rise in personal loans and digital lending. The CBK reports that more than half of these borrowers are using the funds to cover everyday expenses instead of investing in long-term projects. This trend emerges as many Kenyans grapple with the escalating cost of living, compelling an increasing number to depend on loans merely to sustain their daily livelihoods.
The Central Bank of Kenya (CBK) has observed that the continuous increase in inflation is eroding the purchasing power of the average citizen. Essential commodities such as food, fuel, and housing have experienced significant price surges, making life progressively more challenging, particularly for individuals in lower income brackets.
In recent years, the Kenyan economy has faced numerous challenges, including the aftermath of the COVID-19 pandemic, escalating global commodity prices, and erratic weather patterns adversely affecting agriculture.
For many Kenyans, an annual income of 500,000 shillings was once seen as a stable financial position; however, in the current economic landscape, this figure has become insufficient. A considerable number of people are now finding it difficult to meet even their basic needs, while others are only able to cover essential costs.
The skyrocketing cost of living has strained household finances to the breaking point, forcing many to seek loans to fill the gap. This situation underscores the economic pressure that has compelled a significant portion of the population to borrow not just to maintain their lifestyle, but to meet fundamental necessities.
The increasing reliance on loans has raised alarms among financial analysts, who warn that while borrowing may provide temporary respite, it often comes with steep interest rates that can trap borrowers in a persistent cycle of debt.
Digital lending in Kenya has witnessed remarkable growth, providing fast and accessible loan options. However, this swift proliferation has raised alarms over exorbitant interest rates, placing a heavy burden on borrowers. The emergence of digital lending applications and predatory lending practices has been fueled by Kenyans looking for alternative financial solutions to address their everyday requirements.
Unfortunately, many borrowers have struggled to meet repayment obligations, exacerbating their financial challenges as they encounter penalties, rising costs of borrowing, and the risk of legal repercussions.
