Why many are struggling amid improved access to financial services 

A regular conversation among Kenyans today revolves around why Mt Kenya was upset with Jubilee in the last election.

Pundits express surprise that after all the work, Jubilee was punished by seemingly angry voters. Their competitors cleverly exploited that anger through the hustlers vs dynasties narrative. But what caused the anger in the first place?

The financial access report for 2021 has been out for nearly a year. The results are as interesting as they are worrisome. Overall financial access through formal channels is at an all-time high of 84 per cent, up from 75 per cent in 2016, and 27 per cent a decade earlier. But the proportion of adults who are struggling has more than doubled, from 15 per cent to 39 per cent in the five years to 2021.

Similarly, the proportion of adults reporting a healthy financial situation has dipped from 40 per cent to 15 per cent from 2016 to 2021.

Access to effective and affordable financial services is assumed to play a key role in equitable growth, the creation of jobs and wealth, as well as food security. 
The current government has promised the Hustler Fund by December and is working to improve the credit standing of 4.2 million mobile borrowers whose loans are currently non-performing.

Unexpected shocks 

Financial health is measured by checking how we are managing day-to-day. That is, do we go without food and how do we get by between one income payment and the next? It is also measured by examining how we cope with unexpected shocks.

Can we, for example, raise a lump sum quickly, set money aside for emergencies and buy medicines?

The study also considers our ability to invest in the future.

So why are our welfare and our financial health rapidly declining? Away from the cheeky political ruse that dynasties and the handshake are responsible, why is such a large number of Kenyans worse off financially today than they were six years ago?

I offer five explanations; escalating cost of living, Covid-19 effects, a high-interest rate regime, a weakening shilling and stagnation of productivity.

Food prices have risen by 75 per cent in the past eight years. For the same income level, we can buy much less food. Covid-19 led to loss of business and jobs, though data now points to a recovery in most areas. To cope with high food prices and job losses, Kenyans now rely on microloans. These are extremely expensive, partially explaining why many loans are non-performing.

High-interest rates mean a high cost of credit for the government, businesses and households. This will only get worse in the short term as the Central Bank further raises rates to control inflation. The weakening shilling means imports are increasingly more expensive.

Real wages have been stagnant for a decade and a half. Interest and exchange rates are prices. Inflation is a measure of movement in prices. Finance is a facilitator or medium of exchange of goods and services. Productivity is the true source of wealth.

We are worse off because, although we have more access to the medium of exchange, our real incomes are stagnant. The policy must therefore move beyond finger-pointing to finding ways to re-ignite productivity.

@NdirituMuriithi is an economist.