- Dataque Analytics
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In recent years, Kenya has experienced a significant increase in youth borrowing, driven in part by high unemployment rates. This trend is fueled by several factors, including efforts to improve financial inclusion, the widespread availability of digital credit services, and the entrepreneurial drive among young Kenyans. Against the backdrop of a slowing growth rate in the labor force sector, youth financial access reached an all-time high in the financial year ending 2022/2023, with an approximate credit access of KES 82 billion for the age group of 18-35 years.
Financial Inclusion and Digital Credits
Financial inclusion has become crucial for economic development in many developing countries, including Kenya. Digital credit services have emerged as significant players in this space, providing accessible financial solutions to the youth. According to a study by Central Bank of Kenya, digital credits are instrumental in extending credit facilities to low-income earners and startups, without the stringent conditions typically associated with traditional bank loans.
The Role of Digital Financial Services
The rapid growth of digital credit services in Kenya can be attributed to their ease of application and convenience. A study conducted by Dataque Analytics revealed by the end of the financial year 2022/2023, more than 8.2 million Kenyan youths had accessed digital loans, with an average loan uptake of KES 10,000. Among these borrowers, 5.6 million accessed credits for emergencies, averaging KES 8,000 per loan, while 3.2 million utilized loans to start businesses, averaging KES 15,000 per loan. Additionally, 4.1 million youths used loans for day-to-day expenses, averaging KES 5,000 per loan.
Impact of Unemployment
Kenya’s youth face a significant unemployment challenge, prompting many to turn to digital loans for survival and as capital for small businesses. Studies indicate that a substantial percentage of digital loans are taken by individuals aged between 18 and 35 years. However, this demographic is also disproportionately represented in default statistics, often leading to negative listings on the Credit Reference Bureau (CRB), which further restrict their access to traditional financial services.
Empirical Findings
Research on digital credit and financial inclusion among Kenyan youth reveals mixed outcomes. While digital credits have increased access to financial services, they have not significantly improved financial inclusion due to issues such as high default rates and financial illiteracy. For instance, a majority of youth with digital loans reportedly use subsequent loans to repay existing ones, perpetuating a cycle of debt.
Government and Policy Recommendations
To address these challenges, government and policymakers are urged to enhance transparency in digital financial services. This includes ensuring that borrowers fully understand interest rates, security requirements, and repayment terms. Additionally, there is a critical need for financial literacy programs aimed at educating youth on responsible borrowing practices and the potential benefits of entrepreneurship and investment.
Conclusion
The trend of increased youth loan uptake in Kenya amidst high unemployment rates highlights the urgent need for enhanced financial education and supportive policies. While digital credit services have played a pivotal role in providing financial access to the youth, they also underscore the importance of addressing financial literacy and promoting responsible borrowing habits. As Kenya continues to develop its financial infrastructure, addressing these issues will be crucial for fostering sustainable economic growth and development among its youth population.
Sources
https://ajoeijournals.org/sys/index.php/ajoei/article/download/275/319
Dataque Analytics, 2023. Financial Inclusion among Kenya’s Youth
