East Africa: H1 credit markets performance

East Africa has been grappling with the rising cost of living, leading to at least 56 per cent of consumers cutting back on expenses and turning to digital loans for survival. Annstella Mumbi, General Manager of Tala, joined CNBC Africa to shed light on the key trends shaping the credit space in the region. Mumbi discussed the significant shift in consumer behavior due to inflation and the increasing cost of credit. She highlighted that consumers are opting to cut down on luxury or non-essential expenses to make financially sound decisions. Despite the challenging economic climate, there remains a high demand for credit, with many traditional financial institutions venturing into digital lending to cater to this need. This shift underscores the evolving landscape of consumer borrowing. One of the primary pain points Mumbi addressed was the allocation of funds towards core utilities and essential services by consumers. With the cost of goods on the rise, households are prioritizing expenses like school fees and business operations as businesses face increased costs of operation. Mumbi emphasized that a significant portion of credit is directed towards MSMEs, reflecting the impact of economic challenges on businesses in the region. The conversation also delved into the prevalence of the 'side hustle culture' among consumers, with many individuals leveraging loans to establish additional sources of income. Mumbi revealed that a substantial percentage of borrowers engage in side businesses to supplement their primary income, especially in light of stagnant salary levels and escalating living expenses. This trend highlights the adaptability and resilience of the East African consumer base. Mumbi highlighted a notable statistic indicating that 51% of polled consumers had utilized digital lenders for loans, showcasing a significant increase from previous years. The digital credit market in Kenya alone disburses billions of shillings monthly, underscoring the growing accessibility of credit through digital platforms. The ease of access to credit plays a pivotal role in addressing the financial needs of a large portion of the population, with many accessing credit digitally for the first time. Addressing concerns about loan repayment, Mumbi acknowledged the challenges posed by the rising risk profile of borrowers, including over-indebtedness and borrowing from multiple digital lenders. She emphasized the importance of transitioning towards a consumer-centric credit approach, focusing on enhancing financial health and responsibility among borrowers to ensure sustainable lending practices. Looking ahead, Mumbi predicted that consumers would continue to prioritize frugality and essential spending amidst persistent inflationary pressures. She emphasized the shift towards financial tools that promote savings and financial planning to navigate economic uncertainties effectively. From a lender perspective, she stressed the need for customer-centric products with enhanced flexibility to support timely repayments and cater to evolving consumer needs. In conclusion, the discussion highlighted the evolving credit landscape in East Africa, shaped by economic challenges and changing consumer behaviors. As the region grapples with the impact of inflation and rising living costs, digital lending emerges as a crucial resource for many individuals and businesses seeking financial stability and growth.