Unanswered questions about the SGR

Depending on which online news source you believe, anything from 500,000 to 2.7 million Kenyans have been blacklisted by the various Credit Reference Bureaus after defaulting on loans.

This development — whatever the correct figures may be — arises directly from the easy availability of the ubiquitous loans offered with great persistence through mobile phone apps.

True some of the loans that landed borrowers on that blacklist are from other sources — such as the Higher Education Loans Board.

Still, the bigger pattern is one that shows that the advent of unsecured loans from whichever sources, led directly to massive loan defaults as Kenyans borrowed more than they could easily repay.

And so, is it any wonder that our government is frequently accused of the same thing — borrowing more than it should?

Before going on, let me mention that this issue of at what point a government should be considered to have borrowed “more than it should” is open to debate. The Nobel prize-winning economist, Paul Krugman, has frequently argued in his New York Times column that this issue is one widely misunderstood.

In a column published in 2015 under the title “Nobody Understands Debt,” he sets out to explain “… a misunderstanding of the role debt plays in the economy. You can see that misunderstanding at work every time someone rails against deficits with slogans like “Stop stealing from our kids.” It sounds right, if you don’t think about it: Families who run up debts make themselves poorer, so isn’t that true when we look at overall national debt? No, it isn’t…”

His argument, distilled to its essence, is that provided the economy keeps on growing at a rate that is well above the interest rate charged on the national debt then the national debt is a “trivial” concern.

I am tempted to compare this to a story a friend of mine once told me: That many years ago, when he was earning just Sh30,000 a month, he borrowed Sh70,000 and invested it in learning some kind of advanced computer programming. This enabled him to get a job that paid him a monthly salary of Sh120,000 just a year later — at which point his loan became “trivial”, as Krugman would put it.

But it’s probably more complicated than that. And in any event, such complex arguments of economic theory need not trouble us, ordinary mortals.

My point here is simply that there is a clear parallel between the way in which China has been giving out loans until fairly recently and the manner in which loans are given on those mobile phone apps.

Kenyans, it would seem, are anthropologically programmed to accept all and any loans that are available.

For many years past, our national loans were largely taken from multilateral lending institutions such as the World Bank and the African Development Bank; or from the EU nations, the US, and Japan.

Such lenders invariably examined in great detail if indeed this loan would either be easy to repay in and of itself. Or else, whether the infrastructure created would generate so much economic growth that the increased national revenues would make the loan easy to repay. Such conditions curbed our national appetite for loans.

But then came China with what seemed to be — initially anyway — loans that were given out simply on request.

Now, I do not subscribe to the xenophobic accusations about how China seeks to “recolonise” various African nations by giving them loans they cannot hope to repay. But all the same we have to admit that the critics of Chinese lending policies do have a point:

Chinese leaders have brought about an economic miracle in their own country of sustaining very high economic growth for 30 straight years, and in the process lifted about 500 million of their people out of extreme poverty. They must know something about viable infrastructure projects.

So how is it that when China provides money for a new railway in Kenya, and also builds it through their state-owned corporations, it is only when the new railway is halfway through to Uganda that it is suddenly “discovered” that this railway is not economically viable?