While the rise of mobile/ digital payments in Kenya- popularly known as M-Pesa - and its impact on reducing poverty and helping marginalized groups improve their ability to manage risks have been written about extensively, there has been much less attention paid to more recent developments in the rise of digital credit for mobile banking users popularly known as “digital loans” or “digital credit”. Since the launch of the first digital loan product in Kenya - MShwari - by Safaricom and the Commercial Bank of Africa (CBA) in 2012, the country has experienced a significant increase in the size of the digital credit for mobile banking market, both in terms of providers and the total amounts of loans disbursed. For instance, as of 2018, a total of KES 230 billion have been disbursed by the M-Shwari platform alone. It is estimated that there were over fortynine other digital platforms in 2017. This brief focuses on youth borrowers as they have been identified as the major users of digital loans in the FinAccess 2019 study (FSD Kenya,2019). Furthermore, there have been concerns relating to late repayments, loan defaults and increase in the debt burden amongst the youth. This has been documented across all users of digital borrowers but rife among young users (ibid). Consequently, this study focused on understanding the reasons behind the over-indebtedness among the youth in Kenya. The research on which this policy brief is based is one of the first to estimate the levels of over-indebtedness and financial capabilities among youth digital loan borrowers in Kenya to give a detailed understanding of the sources of overindebtedness.

show more