Majority of households in the country relied on credit to make ends meet in terms of food provision for the six months to December this year, according to the World Bank
In its latest country economic update the World Bank notes that most Kenyan households have been affected by the runaway inflation and climate shocks which have pushed individuals to borrowing.
“These shocks have spurred the use of credit, particularly to purchase food with some households resorting to take out loans and making purchases on credit,” says the report.
It further observes that the move towards seeking credit is intended mainly to protect the households’ consumption in the face of the increasing cost of living.
Monthly Kenya National Bureau of Statistics (KNBS)inflation data for the month of November shows the cost of living over the last 12 months rose from 5.8 per cent in November last year to 9.5 per cent in November this year.
This was mainly due to an increase in prices of commodities under the Classification of Individual Consumption by Purpose (COICOP) divisions.
In the informal sector about 58 per cent of the households relied on friends and family for assistance.
In the past one month to December, 60 per cent of both formal and informal households have explicitly been reported to purchase food on credit.
This share was higher among rural households which took about 62 per cent.
In the Arid and Semi-Arid Land (ASAL) counties, 70 per cent of the households were reported to rely on credit to purchase food.
In terms of wealth quintile, a representation of one fifth of households, with quintile one (Q1) being the poorest 20 per cent of households and quintile five (Q5) being the richest 20 per cent of households, Q1 had the most reliance on credit at 70 per cent whereas Q5 had the least at about 45 per cent.
The report notes that the trend of households continuing to rely on borrowing has persisted since the start of the Covid-19 pandemic, especially through short-term borrowing on mobile money platforms.
“Despite Kenya’s rebound from the pandemic which continued to this year, this trend raises concerns of increased indebtedness, especially given that half of Kenyans are unaware of the true cost of borrowing,” says the report.
The report notes that the country’s incomes have been declining consequently, mostly in agricultural households amid the prevailing climate shocks that are affecting agricultural production.
Almost 90 per cent of households in ASAL counties and 43 per cent in non-ASAL counties reported lower harvests than in the previous season, driven by drought and the higher cost of supplies which have risen by about 30 per cent.
This resulted to one in four agricultural households experiencing lower agricultural earnings this season compared to June 2021, with average earnings 38 per cent lower.
