Experts are warning against the rise of the digital credit market, saying it has raised concerns about the risk of excessive borrowing and over-indebtedness among lower-income households.  According to the latest survey, digital loans are easy to obtain, short-term, carry a high interest rate and are available from numerous bank and nonbank institutions.

“The survey found that 14 percent of digital borrowers were repaying multiple loans from more than one provider at the time of the survey. This means over 800,000 Kenyans were juggling multiple digital loans. Although having multiple loans is not necessarily an indicator of debt distress, it is important to closely monitor the market going forward and detect possible risks,” says the Kenya’s Digital Credit Revolution Five Years On survey report.

According to the survey, it is also important to note that debt stress does not occur only when customers borrow multiple loans: It can happen even with a single, microsize loan.

“About half of those surveyed reported being late at least once with their digital credit and about 13 percent admitted defaulting on their loan, although the actual number may be higher due to under-reporting. Over half of digital borrowers reported dipping into their short- and long-term savings to pay back a loan, 20 percent reported reducing food purchases and 16 percent reported borrowing (mostly through family and friends). The main reasons for late repayment are problems with business performance and losing a key source of income,” the survey conducted by FSD-Kenya, in partnership with the Central Bank of Kenya (CBK), Kenya National Bureau of Statistics (KNBS) and Washington-based CGAP found.

At the time of the survey in 2017, digital credit was the most used source of credit among phone owners at 19%. Yet the use of informal loans is similar among digital borrowers and nondigital borrowers, indicating that digital credit complements, rather than replaces, informal sources. The same goes for formal sources. In fact, digital borrowers are considerably more likely to use bank credit and SACCO loans.





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