In a country that glorifies small jostling, employees are not lacking in search of additional income.
There is also a growing number of Kenyans going into business, forced by the cruel hand of rising unemployment.
Academic qualifications don’t matter much, and all one needs is a workable idea and a bit of capital, depending on the company of their choice.
And therein lies the problem, according to a new report from digital lender Tala, which shows that many entrepreneurs have limited knowledge about how to manage expenses.
According to the MoneyMarch 2022 report, the majority of Kenyans need education on saving and managing business expenses, among other key areas.
The report released earlier this week identified how to grow or start a business (24%), save money efficiently (24%) and get debt under control (21%) as areas of concern for the majority of respondents.
Other areas included creating a budget to manage expenses (15%), learning to adapt to financial emergencies (14%), and other areas not listed (3%).
Of all areas, how to start and grow a business was the top priority among the 423 Tala customers who were surveyed.
This indicates the reason why most respondents search for loans on the mobile loan app.
While presenting the findings, Tala’s User Research Manager, Mr. Teddy Kahiro, said the main focus of the report was to determine levels of financial literacy and resilience.
He added that it was also intended to help the fintech company understand its customers, their needs, their evolving preferences, and how it can scale to meet their needs.
“Furthermore, we believe that empowering our clients to make education-based financial decisions will help break the cycle of over-indebtedness and bring more underbanked Kenyans into the circle of financial health,” said Mr Kahiro.
Tala noted that for the majority of clients whose borrowings increased over the past six months, their need for money was business-related.
“This speaks to the growing need to have more than one source of income, hence the need for capital or funds to run their side businesses,” the report said.
It says 43% of 423 respondents cited “business expenses” as the reason for borrowing. Another 35 percent of borrowers cited the need to “add equity” to their businesses.
Other needs included school fees (20%) and medical costs (6%). Utilities, home and personal expenses took 19%.
“For those whose borrowings remained the same or lower, it was primarily for tuition and utility or personal expenses,” the report said.
The majority of Tala’s clients have increased their borrowings over the past six months, he says.
“This speaks to spending growth, with 53% saying their spending has increased over the past six months.”
The majority of app customers use more than one mobile lender, on average two.
“This means that there are unmet needs by the various lenders used,” the report said.
“Half (52%) of clients borrow between 25,000 and 30,000 shillings on each borrowing occasion.”
The report’s findings are consistent with the Central Bank of Kenya’s latest FinAccess report which raised concerns about the financial literacy of Kenyans, particularly in relation to business spending.
The FinAccess report noted that most respondents who said they had taken out business loans said the purpose was to finance expansion, indicating a demand for solutions tailored to this need.
“With regard to the qualitative dimension of financial inclusion, as assessed on the basis of financial literacy and consumer protection, the survey indicated that 45% of respondents relied on friends and members families for financial advice, with formal institutions playing a peripheral role,” the report released earlier this year said.
While the rapid adoption of financial technologies and innovations has increased access to financial products and services, the FinAccess report indicates that this has led to financial literacy and consumer protection issues.
Indeed, some of them have been victims of fraud and unexpected charges.
Family and friends account for the largest percentage of financial advice (45%), followed by self or no one (43%), media and advertising (3.6%) and financial institutions (2. 9%).
“When measured by level of education, 50% of the population with no education and 46.6% of the population with secondary education relied on friends or family for advice when of financial decision-making in terms of the rural-urban divide, 46.5% of residents in rural areas depended on friends or family in decision-making on financial matters, compared to 42.4% in urban areas “, says the report.
The FinAccess survey stated that the source of financial advice is an indicator of trust in an institution or person.
“Knowledge of basic financial terms and the ability to identify transaction costs associated with a financial service are important components of consumer protection and personal financial planning and budgeting,” the report states.
The Tala report shows that when it comes to borrowing, nearly six in 10 Kenyans (59% of Tala clients) have increased their borrowing in the past six months.
“The main reason 78% of participants took out loans was business-related, either to pay business expenses or to add equity, supported by the finding that eight in 10 respondents have secondary activities other than their main source of income,” the report states.
Ms. Annstella Mumbi, head of growth at Tala Country Growth, said giving clients a solid education in finance is a key objective.
“We believe that the financial resilience of Kenya’s underserved and underbanked majority can be greatly enhanced by helping them understand how money works in day-to-day life,” she said.
“Financial literacy education will give young people the foundation for future success and can help economically disenfranchised Kenyans move out of deprivation.”