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Counties with Worst Defaults Exposed


Counties with Worst Defaults Exposed

Patrick Njoroge, Governor of the Central Bank of Kenya (CBK). PICTURES | DIANA NGILA | NMG

Drought-affected Marsabit, Garissa, Samburu and Isiolo counties have the highest proportion of borrowers in credit default, including dues due to traders and shylocks.

Default rates in the four counties ranged between 47% and 74% and more than double the national average of 24%, according to a survey partly conducted by the Central Bank of Kenya (CBK).

Busia, Nandi, Siaya and Nairobi had the lowest levels of default in findings that seek to influence lending patterns by banks and digital lenders across Kenya’s 47 counties.

The northern counties of Kenya have been the worst hit by drought over the past two years, which has hurt households that rely on livestock as their main source of income.

Household survey results from CBK, FSD Kenya and Kenya National Bureau of Statistics (KNBS) show that 50.9% of respondents with credit defaulted on mobile loans last year .

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Consumers also defaulted on credit from neighborhood merchants and shylocks as well as family and friends despite the rapid growth of the banking sector, whose default levels stood at 14% of loans borrowed.

Around 41.8% of those who owed friends and family defaulted, 40.6% and 31.3% owed traders and shylocks unable to repay their debts.

The four counties are among 11 identified by the National Drought Management Authority as suffering from acute drought and severe vegetation deficit, which has hit herders.

The others are Kajiado, Kitui, Mandera, Laikipia, Tana River, Turkana and Wajir.

“Marsabit, Garissa and Samburu counties recorded the highest level of over-indebtedness represented by default rates of 74%, 50% and 58% among the adult population, respectively. This may be explained by the climate shock of drought faced by these counties which has reduced the ability of borrowers to repay their loans,” the survey states.

“Busia, Nandi and Siaya had the lowest incidence of defaults, all with less than 5% among the adult population of reported defaults.”

The survey defines default as missing a scheduled repayment, paying late, and making no payment at all.

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The bulk of defaults are related to mobile loans, being the most preferred loans in counties that have few physical banking facilities.

Marsabit, for example, had only four commercial banks – operating six branches – with only 5.4% of the population using formal banking services and 2.8% accessing SACCOs.

Access to mobile money services was 77.8%.

Awareness of the cost of borrowing, a key factor in choosing a lender, is also relatively low in the county at 29.8%, meaning borrowers in the area are likely to fall prey to practices. predatory lending patterns that have been blamed on unregulated lending. mobile lenders.

In Garissa and Samburu, only 0.3% and 17.2% of residents respectively use banking services, while 60.7% and 62.9% use mobile money services.

Mobile banking and digital loans are issued without collateral, making them vulnerable to borrower default. They are also often taken as an emergency measure by cash-strapped individuals or companies, hence a higher risk of default.

Many Kenyans are now finding they can get loans in minutes, with banks relying heavily on algorithms that build a financial profile of customers in a bid to minimize the risk of default.

The defaults also come at a time when the state is rushing to deal with a heavy debt burden, tight cash flow, soaring living costs and drought.

Expensive commodities have hit workers hard as the inflation-adjusted average real wage stood at minus 3.83% last year, down from minus 0.59% in 2020.

Employers say real wages will take longer to improve amid the economy’s recovery from the Covid-19 economic woes, which led to layoffs, pay cuts and business closures .

This has forced many households, especially in the low-income segment, to reduce their shopping basket in an environment where businesses have frozen wages as they recover from the economic difficulties of Covid-19.

Rising commodity costs forced workers to cut back on non-essential items such as beer and airtime, which ultimately hurt companies like East Africa Breweries Limited (EABL) and Safaricom.

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