The Necessity of Borrowing in Kenya Amid Rising Living Costs

Kenya is witnessing a notable increase in borrowing among households due to soaring living costs and delayed incomes. Traditional cost-cutting methods have declined, with more individuals opting for loans to manage essential expenses. Optimism regarding financial futures remains high despite economic challenges, as many seek entrepreneurship and investment opportunities.

In Kenya, more than one-third of individuals are increasingly resorting to borrowing, driven by escalating living costs and income delays. Typically, during economic hardships, Kenyans have opted to cut expenses, especially on non-essential items. However, recent findings indicate a significant shift in consumer behavior as families pursue loans to cover essential needs due to limited options for reducing expenditures.

According to the latest Money March report from digital lender Tala, as living costs rise, households are compelled to seek loans to uphold their daily livelihoods. This trend has rendered traditional cost-cutting strategies less effective; a decrease from 72% to 59% of respondents indicated they would be reducing their expenses this year. Conversely, those inclined towards increased borrowing surged from 27% to 46%, showcasing a 19% increase. Additionally, individuals starting new businesses as a coping mechanism also rose from 34% to 51%.

Teddy Kahiro, research manager at Tala, emphasized that the high cost of living forces many to question if borrowing is now essential. The report reveals that overall borrowing is on the rise, closely linked to financial pressures faced by households. Annstella Mumbi, general manager of Tala-Kenya, identified business expenses, education, and daily living costs as primary reasons for borrowing, with around 80% of borrowers believing in their capability to repay loans.

When discussing future aspirations, those surveyed indicated that their primary financial goals included business and home ownership over the next five years. Notably, many respondents also allocate 11 to 20% of their income toward investments, particularly in savings and cooperative societies, with the intent of building wealth and preparing for retirement. Nevertheless, concerns about potential losses and lack of trust in investment platforms hinder further financial engagement.

The report notes a 7% increase in business ownership in 2025, juxtaposed with a 5% decline in full-time employment as the predominant income source. Moreover, individuals in both full-time and part-time roles are less likely to engage in endeavors yielding secondary income, attributed to the rising cost of living limiting available funds for side ventures. Despite these challenges, optimism prevails amongst Kenyans, with 46% expressing positive outlooks regarding their financial futures in comparison to the previous year.

In conclusion, the rising cost of living in Kenya has catalyzed a significant shift towards borrowing as a coping mechanism among households. With traditional methods of reducing expenditure proving ineffective, many individuals are now relying on loans for basic needs and pursuing entrepreneurship as a means to improve their financial situations. While challenges persist, Kenyans maintain an optimistic outlook regarding their future financial prospects.

Original Source: eastleighvoice.co.ke