Rising Trend: Kenyans Mortgaging Household Items for Loans amid Economic Challenges

The economic landscape in Kenya is shifting as more and more individuals are turning to unconventional methods to secure loans amidst a challenging financial environment. According to the Business Registration Service (BRS), a significant number of Kenyans are now mortgaging household items such as televisions, fridges, tables, and sofa sets to obtain short-term credit.

In the year leading up to June 2023, a staggering 100,985 pieces of household items were used as collateral for loans, surpassing other movable assets like motor vehicles and furniture. This trend highlights the growing reliance on loans to meet daily needs, such as food, health, and rent costs, as real wages continue to decline for the fourth consecutive year.

The BRS, which oversees the Movable Property Security Rights (MPSR) registry, noted that the cumulative amount of credit facilitated by movable assets during this period amounted to a substantial Sh5.1 trillion. This surge in the use of household items as loan security comes at a time when businesses and individuals are grappling with high taxation, inflation, and stagnant real wages.

Despite a reported economic growth of 5.6 percent in 2023, the job market struggled to create new opportunities, leading to a decrease in real wages adjusted for inflation. The 2024 Economic Survey revealed that the average pay increase in 2023 was only 2.8 percent, while real wages fell by 4.1 percent, putting additional strain on households and businesses.

With firms facing higher operating costs and reduced purchasing power among consumers, many have frozen pay increases and turned to releasing assets to secure loans. The enactment of the Movable Property Security Rights Act in 2017 has provided a legal framework for using movable property as collateral, giving lenders more confidence to extend credit to borrowers.

As the demand for loans continues to rise, more creditors are entering the market, offering short-term financing solutions to individuals in need. However, the increase in non-performing loans in the banking sector reflects the challenges faced by borrowers in repaying their debts, further underscoring the financial pressures in the country.

Overall, the trend of mortgaging household items for loans underscores the urgent need for sustainable economic solutions to alleviate the financial burden on Kenyan households and businesses.