The Necessity of Borrowing in Kenya Amidst Rising Living Costs

In Kenya, over one-third of the population is increasing borrowing due to high living costs and delayed income. Shifting from traditional expenditure cuts, the reliance on loans is rising as options for spending reduction diminish. The Money March report by Tala highlights this trend, showcasing that business expenses and daily needs dominate borrowing motivations, while optimism about future financial well-being persists among Kenyans.

In Kenya, a substantial portion of the populace, over one-third, is now engaging in increased borrowing, primarily as a response to escalating living costs and delayed income. This marks a shift from the traditional strategy of cutting non-essential expenditures during economic hardships, as many consumers find it increasingly difficult to manage their financial obligations.

Recent findings from the Money March report by digital lender Tala illustrate that as household budgets buckle under rising costs, the reliance on loans has surged. Many individuals are turning to borrowing to sustain their livelihoods, as options for reducing spending become exceedingly limited.

The report indicates that the once prevalent approach of cutting expenditures has waned, with only 59 percent of respondents planning to reduce their spending—down from 72 percent last year. In contrast, the percentage of individuals opting to borrow more rose significantly, from 27 percent to 46 percent, showcasing a vital shift in consumer behavior. Furthermore, the intent to initiate new business ventures as a coping mechanism has also surged, increasing from 34 percent to 51 percent.

Teddy Kahiro, Tala’s research manager, expressed concern, stating that the high cost of living has left Kenyans with little discretionary spending left. “This then raises the question of whether borrowing is now becoming a necessity for most Kenyans,” he remarked.

The report reveals that the primary motivations for borrowing are related to business expenses, education, and daily living costs, with approximately 80 percent of borrowers feeling confident about their ability to repay. Future aspirations among respondents predominantly focus on business ownership and home acquisition, with many allocating a significant portion of their income towards investments and savings.

Annstella Mumbi, Tala-Kenya’s general manager, noted that while there is a desire for wealth accumulation and business expansion, fears of loss and mistrust in investment channels hinder greater financial planning. Business ownership has seen a growth of seven percent, whereas reliance on full-time employment has dropped by five percent, highlighting the evolving employment landscape amidst economic challenges.

Overall, financial strains persist, with 90 percent of respondents encountering financial difficulties recently. Nonetheless, a majority remain optimistic, with 46 percent expressing favorable views about their financial futures, reflecting a resilient spirit among Kenyans despite ongoing economic pressures.

The evolving financial landscape in Kenya illustrates a significant shift in consumer behavior, as an increasing number of individuals resort to borrowing in the face of mounting living costs. While traditional coping mechanisms such as reducing expenditures decline, borrowing emerges as a critical necessity for many. Despite financial challenges, the Kenyan populace exhibits a commendable resilience and optimism regarding their financial futures.

Original Source: eastleighvoice.co.ke