Why more Kenyans are borrowing to survive

For many Kenyans, taking a loan is no longer about starting a business, buying equipment or expanding an investment. It is increasingly becoming a way of making it through the month.

As the cost of living continues to squeeze household budgets, more families are relying on digital loans, asset financing and informal credit to pay rent, buy food, settle school fees and meet medical expenses.

While credit has become a powerful tool for financial inclusion, new industry reports warn that many borrowers are becoming trapped in a cycle of debt where loans meant to ease financial pressure end up creating even greater hardship.

The latest Watu Sustainability Report highlights both the promise and the growing risks of Kenya's expanding credit market. While the report credits asset financing with improving incomes and creating economic opportunities, it also identifies over-indebtedness and borrowers' exposure to economic shocks as major sustainability risks.

Watu, one of Africa's largest non-bank asset financiers, says it has built its business around providing motorcycles, tuk-tuks and smartphones to customers who often lack access to traditional bank credit. The company operates in seven African countries and targets entrepreneurs in the informal sector who rely on productive assets to earn a living.

Its 2024 Sustainability Report shows that since 2022, Watu has financed more than 1.8 million smartphones across Africa, with Kenya accounting for over one million devices.

Customer surveys found that nearly 40 per cent of smartphone users reported higher incomes after acquiring the devices, while between 37 and 44 per cent said they had improved their ability to save. Smartphones have also enabled users to access digital jobs, mobile banking, online trading and e-commerce opportunities.

Watu Credit Country Manager Erick Massawe says motorcycle financing has equally transformed the boda boda sector by enabling riders to move from renting motorcycles to owning income-generating assets.

However, Watu acknowledges that financial inclusion alone does not shield borrowers from financial stress.

The report identifies irregular incomes, inflation and economic uncertainty as key factors that increase repayment risks, particularly among low-income borrowers whose earnings fluctuate from day to day.

It says the company has strengthened customer protection by promoting financial literacy, offering flexible repayment options and improving customer engagement to help clients facing temporary financial difficulties.

The findings reflect a much broader trend across Kenya's lending market.

According to the Digital Financial Services Association of Kenya (DFSAK), licensed digital credit providers had issued 6.6 million loans worth Ksh.109.8 billion by November 2025.

The association says digital credit has become an essential source of liquidity for households and businesses, helping many families cope with rising living costs and providing working capital for micro and small enterprises.

But the same report notes that many Kenyans are borrowing under intense financial pressure.

Research cited by DFSAK shows digital credit is increasingly supporting households and small businesses struggling with high living costs.

While the association says digital lending continues to expand financial inclusion, it also emphasises the need for stronger financial literacy, consumer protection and responsible lending to prevent borrowers from sliding into over-indebtedness.

The challenge is perhaps most visible in Kenya's boda boda industry.

A study on the country's motorcycle transport sector found that access to asset financing has enabled thousands of riders to purchase motorcycles instead of renting them, allowing them to build assets and improve long-term incomes.

However, the report also reveals that many operators struggle to meet loan repayments because their earnings fluctuate with fuel prices, weather conditions, customer demand and unexpected events such as illness or accidents.

The study warns that multiple borrowing, high financing costs and limited financial literacy are exposing many riders to financial distress.

Some operators take additional loans simply to remain current on existing repayments, creating a debt cycle that becomes increasingly difficult to escape.

Similar patterns are emerging within Kenya's fast-growing gig economy.

A study of motorcycle ride-hailing drivers found that 64 per cent were still repaying motorcycle loans or rental agreements, while 40 per cent were also servicing loans used to acquire smartphones required for platform work. More than 70 per cent admitted skipping essential household expenses such as food and rent to keep up with loan repayments.

Researchers found that drivers work an average of more than 66 hours a week, yet many continue to struggle financially because debt repayments consume a significant share of their earnings.

Although asset ownership creates opportunities to generate income, loan obligations often leave little room for savings or emergency expenses.

The findings point to a growing divide in Kenya's credit market.

Productive credit which is used to finance motorcycles, smartphones or businesses, continues to create jobs and expand incomes. However, a growing share of borrowing is now being driven by consumption, with households relying on loans to meet every day needs rather than generate future income.

This trend is more difficult to sustain because loans used for consumption rarely produce additional income to support repayment. As a result, many households end up borrowing again to settle previous loans, deepening financial vulnerability.

Recognising this challenge, Watu says responsible lending has become central to its business strategy.

The company has integrated customer protection into its environmental, social and governance framework through financial literacy programmes, transparent lending practices, customer satisfaction surveys and repayment support for borrowers experiencing temporary financial hardship.

The emerging picture from the reports is that Kenya's expanding access to credit remains a powerful engine for financial inclusion and entrepreneurship.

However, unless incomes rise and borrowing increasingly supports productive investment rather than day-to-day survival, more households risk finding themselves caught in a debt spiral where credit provides temporary relief but little lasting financial security.