Household debts pushed shopkeepers out of business - report

In Summary
  • Remittances from breadwinners, dropped by a whopping 40 per cent between April and September 2020
  • Generally, borrowing for survival was the leading coping mechanism for most household
A customer at a kiosk in Westlands, Nairobi/
A customer at a kiosk in Westlands, Nairobi/
Image: FILE

Nearly half of Kenyan households borrowed from shopkeepers and friends to cope with the tough economic effects of Covid-19, the latest report by Financial Sector Deepening Kenya (FSD) shows. 

The 2020 annual report shows 49 per cent of households borrowed from friends and relatives to buy basic needs while 43 per cent bought food on credit from shopkeepers between March and May last year.

However, this trend dropped significantly between May last year and February this year, with only 33 per cent and 19 per cent of households borrowing from relatives and shopkeepers respectively. 

FSD Kenya attributes the reduction to slow recovery in economic activities after the government relaxed strict Covid-19 prevention measures and collapse of most small businesses.

''There were substantial reductions in shopkeeper credit and loans from friends and family, emphasising the hit to the informal economy,'' the report says in part.

Mobile banking loans remained the most prevalent, testimony to the importance of digital technology in providing access to credit, with a small change in those who relied on it in the early days of Covid-19 and early this year.

At least 59 per cent of households relied on mobile banking in the period to May last year while 48 per cent depended on the sector for credit in a period to February this year. 

Generally, borrowing for survival was the leading coping mechanism for most households followed by increased cost-cutting with food expenses topping the chart. 

Remittances from breadwinners, dropped by 40 per cent between April and September 2020 with at least 88 per cent of adults saying their incomes had decreased during the pandemic. 

''This put tremendous pressure on the middle layers of the economy, especially landlords and shopkeepers who bore the brunt of these deficits through accumulated rent arrears and goods given on credit,'' the report says.

There was a growing divide between those who were able to rely on assets, social networks and livelihoods to remain afloat- or even profit from new investment opportunities; and those who spiralled into deeper poverty.

In April, the World Bank projected that the economic crisis arising from the coronavirus pandemic could set back poverty reduction efforts by around three years.

In a report dubbed 'Poverty and Shared Prosperity 2020', the global lender said the Covid-19 pandemic pushed between 88 and 115 million people into extreme poverty in 2020.

The restrictions imposed from March as a consequence of the pandemic curtailed business operations and reduced customer demand, with the hit edging out small businesses. 

According to FSD, revenues for small businesses dropped 45 per cent in 2020, rendering the majority of those employed in the sector jobless.

The unemployment rate in the country doubled to 10.4 per cent from 5.2 per cent in 2019. 

Small firms provide employment for 17.5 million adults and contribute 24 per cent to GDP

Monthly volumes of person-to-person transactions increased by 87 per cent between February and October 2020 as people embraced cashless transactions to stem the spread of the virus. 

The volume of transactions below Sh1,000 increased by 114 per cent;with an additional 2.8 million customers using mobile money.

Business-related transactions also recorded significant growth over the same period.

Between April and September, the number of accounts increased by more than six per cent or 3.6 million new accounts.