Financial inclusion has been touted as one of Kenya’s great success stories over the past decade.
The successful roll-out of digital financial services has led to an unprecedented increase in the number of people enjoying access to formal financial services. Today, Kenya is home to more digital financial services deployments than most countries in the world.
According to the 2023 FinAccess Survey by the Central Bank of Kenya, FSD, and the Kenya National Bureau of Statistics, formal financial inclusion had increased from 27 per cent of Kenya’s population in 2006 to 84 per cent. Kenyans utilise digital credit to meet everyday household needs and address emergency expenses, while small enterprises use these loans to scale or manage their daily cash flows.
While this accelerated financial inclusion has enhanced the resilience of communities by providing people with new tools to access financial services, the rosy picture has been bloated with the revelation that millions of borrowers have been trapped in a web of debt. As a result, a substantial number of them have found themselves negatively listed by Credit Reference Bureaus (CRBs).
This raises a crucial question: should the responsibility for preventing irresponsible borrowing solely lie with individuals, or do lenders have an ethical and practical obligation to act as gatekeepers? The answer is that there is a shared responsibility between the credit providers and the borrowers.
First, financial institutions can mitigate these risks by establishing responsible lending guidelines and conducting thorough assessments of borrowers’ creditworthiness using multiple data touchpoints.
Secondly, there is a need for consumer protection anchored on regulation. Self-regulation, although desirable, has proven ineffective in containing non-regulated financial players.
Thirdly, lenders should blend digital credit with savings and insurance products as part of building a comprehensive financial ecosystem. This approach would foster a culture of financial responsibility and promote savings. This can be achieved by financial institutions remodelling their approach to analysing customer behaviour to accommodate a wider, more complex data set to truly make effective lending decisions.
As a recourse to some of these challenges, lenders need to invest in financial literacy initiatives to educate borrowers on how to effectively manage their finances.
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