Kenya’s Evolving Credit Landscape Highlights Drive for Financial Inclusion

Kenya’s economic landscape showcased remarkable resilience in the latter part of 2023, with gross domestic product (GDP) growth coming in at 5.9% in the third quarter of 2023, compared to 4.3% in the corresponding quarter of 2022. Against this backdrop, TransUnion Kenya’s latest Q4 2023 Kenya Credit Industry Insights Report showed a state of flux in the credit market, shaped by macroeconomic shifts, consumer behaviour changes and technological advancements.

In December 2023, the Central Bank of Kenya (CBK) adjusted the Central Bank Rate (CBR) to 12.50%. This increase from 10.50% had impacted the cost of loans and Kenyans’ repayment capacity. The depreciation of the Kenyan Shilling against major international currencies has also put further pressure on the local economic and credit landscape.

“The Q4 2023 Kenya Credit Industry Insights Report tells a story about the evolving credit landscape in Kenya that extends beyond the numbers. It is about enhancing financial inclusion and creating equitable opportunities for all Kenyans. By embracing mobile technology and adapting to economic shifts, we are working hard to enable more people to access the credit they need to thrive, even in challenging times. This commitment to financial inclusion drives our nation’s economic resilience and growth,” says Morris Maina, CEO at TransUnion Kenya.

Mobile loans exhibit a pullback, signalling cautious borrowing

In Q4 2023, Mobile loans accounted for 50.61% of all active loan accounts in Kenya holding a collective balance of KES 148.7B, but the number of new mobile loans and their value decreased by 20.5% and 9.5% respectively from Q1 2023 to Q4 2023. This contraction mirrors the cautious stance of consumers amidst a fluctuating economic environment.

Low-value overdrafts indicated a nuanced shift in the financial landscape

At more than 10.44 million loan accounts, low value overdrafts (less than KES 6,000 of the principal amount) are the lifeblood of accessible credit in the Kenyan market. These represent a significant 34.89% of all active loan accounts, holding a balance of KES 13.06B. TransUnion observed a 15.9% reduction from the previous quarter’s KES 7.94 billion in the value of new, low value ODs booked to KES 6.68B. Despite this, the average quarterly limit edged up 2.05% from KES 730 to KES 745. This slight increase may suggest a more nuanced shift in the financial landscape or even a strategic loan structuring by lenders to accommodate evolving market needs.

High-value overdrafts, indicated a shift toward higher borrowing limits

High value overdrafts (amounts higher than KES 6,000 of the principal amount) made up 2.03% of all active loan accounts in the local market, commanding an impressive balance of KES 506.6B. The value of new high value overdrafts booked increased to KES 35.61B in Q4 2023 from the KES 20.9B of the comparative quarter last year. This generated significant growth in the average quarterly limit and suggests a shift towards larger borrowing amounts for qualifying applicants. To this point, there were approximately 270,000 unique high value overdraft borrowers in Kenya.

The Banking sector maintained lion’s share of balances

The banking sector remained the backbone of the credit industry with the highest loan balances, accounting for 96.16% of the market with 27.03 million active accounts. However, the microfinance sector (741.9k active accounts constituting 0.81%), FinTech (1.43 million at 0.22%), and Savings and Credit Cooperatives (SACCOs) (336.8k at 1.01%) reflect the evolving credit ecosystem of the country.

Millennials shaping current and future credit trends in Kenya

“Millennials are increasingly becoming the backbone of our credit economy. Their distinct financial behaviours and preferences are shaping the way we think about and offer credit products. It remains imperative that we continue to innovate and tailor our offerings to meet the unique demands of this vital demographic,” says Maina.

The report shows that Millennials represented a significant portion of borrowers across various loan products, indicating their critical role in the credit sector. For instance, they accounted for 51.1% of the principal amount of mobile loans as well as 52.9% in personal loans. Millennials also had the highest principal amount (43.7%) of all demographics in low value overdrafts, and asset finance (16.2%). These figures underscore how important it is for service providers to tailor their financial products and services to meet the unique needs and preferences of this demographic.

“The TransUnion report reinforces how dynamic the credit market is in Kenya. It is shaped by several macro-economic factors like inflation, CBR, and the depreciation of the Shilling. By using wider credit data and insights as part of their decisioning, financial institutions can consider applications from an expanded Kenyan credit market to further drive financial inclusion in the country,” concludes Maina.

The credit sector in Kenya remains a critical component of the country’s broader financial ecosystem. As is evident by the TransUnion report, the credit environment in Kenya drives and offers opportunities for both consumers and businesses alike.

The TransUnion Q4 2023 Kenya Credit Industry Insights Report provides an in-depth analysis of the macroeconomic environment and its influence on credit trends within the country. It is available to download here.