Digital loans to businesses drop 15% on tough economic times

The amount of digital loans advanced to businesses has dropped in the past three months of the year as tough economic situation drove more lenders to consumption credit.

This has seen the credit channeled to businesses through the digital channels shrink by 15 percent according to latest industry insights by digital credit provider Tala.

According to the lender Loans to businesses on its platform dropped from 80 percent last year to 65 percent in the same period year, as Kenyan borrowers increasingly turned to survival loans to meet pressing needs such as school fees, food and rent.

A worrying trend however, is that Kenyans borrowing to buy food has increased, with 76 percent of those borrowing for utility bills directing it to food and groceries. This is an increase from the 71 percent recorded last year.

Those borrowing to pay electricity and water bills reduced by three percent to 68percent, while loans towards refilling Cooking gas and kerosene also dropped by the same margin to 56 percent.

Tala user research manager Teddy Kahiro, noted that the loans for personal consumption this year is at 35 percent compared to 20 percent last year.

“People taking more loans targeted towards utility bills, grocery and medical emergencies. Taking loans for business has reduced compared to last year, we are now witnessing an increase on the number of Kenyans reverting to digital loans for rent payment and daily survival and self-sustenance,” said Kahiro.

Under the review period the government introduced new tax measures targeted towards businesses   as it sought net more revenues.  This in turn saw more people stop risking their money in opening new businesses.

Tala says that the situation saw the number of side hustles reduce compared to last year as people hold on to their money due to economic hardships and reduced incomes.

The report further notes that Kenyans are likely to borrow more this year compared to 2023 and 2022 to cater for personal expenses rather than invest in business.

This trend has resulted in fewer business owners and the year-on-year declining incidence of consumers with alternative income sources, now at 58 percent in 2024 from 80 percent in 2022.

“In the face of inflationary pressures, these findings indicate that Kenyans are standing resilient, leaning more into their entrepreneurial spirit and remaining hopeful for a better tomorrow,” said Tala Kenya General Manager, Annstella Mumbi.

According to the insights an average customer is taking two loans ranging between Sh5000-10, 000 to meet their daily needs. Kahiro however notes that compared to last year the use is different.

Salaried people between 25 to 35 years are now taking loans to do business and get extra coin to meet the daily needs.

About two-thirds (64 percent) of those in full-time employment reported engaging in alternative income-generating ventures.

 This is symbolic of the rising cost of living experienced over the last year that has pushed full-time employed consumers to multiply their sources of income to survive inflation.

Among their consideration is cheaper loans and longer repayment periods and Loans collection tactics.

On savings culture, 77 percent of consumers reported saving regularly or occasionally, a decrease compared to 87 percent in 2022 and 85 percent in 2023. However, 1 in 3 (30 percent) of them are saving more today compared to six months ago, with the main reason for saving being financial independence.

Digital credit consumers remain bullish on the Kenyan economy, with seventy-five percent (75 percent) of them reporting that they are optimistic about improving their financial situation within the next six months.

The lender surveyed over 1,000 Kenyans to understand the impact of the cost of living and credit usage between January and March of 2024.