Kenya’s debt trap has entrapped ordinary citizens

The Kenyan economy has been burdened with heavy debt in the past years making it more difficult to tame the debt. Although Kenya has dominated the East African region in terms of economic growth and development to the point of being seen as the ‘capital country’ of East Africa region, the country has not been able to design proper financial and economic framework that will reduce its high level of borrowing and maintain a stable economy on low debt levels, more so in the last decade after Uhuru Kenyatta become the country’s Finance Minister and later the President. The inability for the country to reign in on her debts has led to the country being caught up in a debt trap.

Last year Kenyan Economy is said to have grown by a massive 6.3%, that’s according to the KNBS. Normally you would expect a country with such growth to be at an optimal state able to fund its growth but on the contrary the economy is nothing more than a debt driven engine that uses borrowing and more borrowing to repay the previous borrowing to propel it forward. The Shs 3 trillion fiscal budget for the financial year 2019/2020 does not make things any better, as the budget has a deficit of Shs 607 billion, assuming KRA will be able to collect the Kshs 2.4 trillion it is projected to collect by the end of the financial year.  To make matters worse, the national borrowing culture has trickled down to the ordinary citizen, where almost every Kenyan today lives on borrowed income, with many becoming debt trapped.

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Over the past two years a lot of mobile loan apps have emerged that has populated the country. Most of these mobile apps are unsupervised and unregulated resulting to a very unhealthy economy. Due to high unemployment rate and poverty, majority of the Kenyan youth, being the most affected, have found themselves in a situation like that of the government where not only are they forced to borrow, but to borrow in order to repay previous loans. The maturity period of the mobile loans makes it even harder to manage the loans as they usually give a few weeks to a month for borrowers to pay back the loans, failure to which they list in the defaulters in CRB. To avoid being listed on CRB, one will borrow say like KES 5000 from Tala then repay a loan he had borrowed from let’s say Branch . Tala will again catch up with him forcing him to now from another loan’s app like Okash, and the cycle continues leading to a debt trap. By early this year it was estimated that over 600,000 Kenyans were already listed in CRBs

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Nationally speaking, is it possible to list a country in some International CRB? On the surface understanding, Credit Reference Bureaus are supposed to provide credit ratings for those seeking loans. Thus, a lender should use CRB, not to outright deny a loan to a borrower, but to assess the risk factor of lending to the said borrower. If this understanding is maintained, then yes, Kenya is already listed with International CRBs or rather Credit Rating Agency (CRA). The big three International Credit Rating Agencies are  Moody’s Investors Service, Standard & Poor’s (S&P) who together control 80% of the global market, and Fitch Ratings that controls a further 15% of the market. The credit bureau that Kenya is more afraid of is the Moody’s Investors Service, which in February last year downgraded Kenya’s credit worthiness from B1 to B2. B2 credit rating is considered as a rating where an obligor is more vulnerable but the obligor has the capacity to meet its financial commitments. That is, in the case of adverse business, financial, or economic conditions, the obligor will likely be unable or unwilling to meet its financial commitments.

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It is the likelihood that Kenya may get into a situation where she is unable or even unwilling to meet her debt obligations that has sent waves of fear amongst Kenya’s top economists particularly David Ndii. The fear is that incase Kenya fails to pay her growing foreign debt in time, then lenders like China may come home bulldozing the country’s assets, where they may target high valued assets like the sea and air ports. Failure to repay the debts may also impair the country’s relations with the nations it owes money, which will ultimately affect our exports to those countries.

Adrian Opiyo

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