Personal credit — the credit individuals take out — is the largest credit market by number of borrowers, even though it's a fraction of total credit value compared to corporate and sovereign. It's also where most people first encounter credit, so understanding it is the foundation of broader credit literacy.
Revolving vs installment credit
- Revolving credit (credit cards, overdraft, HELOC): borrower has a credit limit; can borrow, repay, borrow again up to the limit. Interest charged on outstanding balance daily or monthly. Minimum monthly payment but no fixed payoff schedule. Examples: Visa/Mastercard, store cards, M-Pesa Fuliza overdraft.
- Installment credit (mortgage, auto, personal loans): fixed amount disbursed; fixed payment schedule (typically monthly equal payments amortising principal + interest); fixed term. Examples: SACCO loans, KCB mortgage, NCBA auto loan.
Secured vs unsecured
Secured credit pledges an asset that the lender can seize on default — mortgage (house), auto loan (vehicle), title loans (anything titled). Unsecured credit relies only on the borrower's promise to repay — credit cards, personal loans, signature loans. Secured rates are 3–10 points lower than unsecured because the lender's loss in default is lower (they recover at least some value through the asset).
The Kenyan retail-credit landscape
Kenyan retail credit is dominated by: (1) SACCO loans (~KES 800bn outstanding) — guarantor-backed, repayable from payroll deduction; (2) mobile-money micro-credit (M-Shwari, Fuliza, KCB M-Pesa, etc.) — typically <KES 50k tickets, algorithmic; (3) bank personal loans for salaried employees — payroll-checkoff secured; (4) auto loans (NCBA, Stanbic dominate); (5) mortgages (KMRC, KCB, HF, ABSA) — but the mortgage market is small (~30k active mortgages nationwide) due to documentation and affordability constraints. Credit cards are minor in Kenya compared to Western markets.
Buy Now Pay Later (BNPL)
BNPL — Klarna, Afterpay, Lipa Later in Kenya — splits a purchase into 4 interest-free payments paid over 6 weeks. The merchant pays the BNPL provider 4–6% of the transaction; the consumer pays nothing extra if they pay on time. It's effectively a 4-installment loan disguised as a payment option. The risk: 'no interest' framing leads consumers to over-borrow, especially across multiple BNPL providers. Regulators in the EU, UK, Australia, and US have begun pulling BNPL into consumer-credit regulations after default rates rose above 10% in 2023.
SACCO loans — the Kenyan special case
Kenyan SACCO loans operationally do what unsecured personal loans do in other countries, but with a structural difference: members deposit savings (called 'shares') over years, which serve as both collateral (forfeited on default) and as the basis for borrowing capacity (typically 3x deposits). Guarantors — other SACCO members willing to back the loan — provide additional security. SACCOs offer rates 2–4 points below banks because the structure is lower-risk: payroll-checkoff (employer deducts repayment), guarantor coverage, share collateral.
Reading a personal-credit application
When evaluating a personal-credit application: (1) Look at debt-service-to-income ratio (DTI). Above 40% is concerning; above 60% is reckless. (2) Look at the trend of utilisation on revolving accounts — rising utilisation is an early stress indicator. (3) Check for recent credit applications ("credit shopping") — multiple inquiries in 30 days suggest cash strain. (4) Look at the mix — too much revolving and not enough installment suggests over-reliance on flexibility, which is what borrowers reach for when stressed.
Exercise
A SACCO member earning KES 80,000/month requests a KES 1.5m loan over 36 months at 12% reducing-balance. They have KES 350,000 in shares and two willing guarantors with KES 600,000 combined. Their current obligations: KES 8,000/month rent, KES 5,000/month other loan. Compute the monthly instalment, DTI after the new loan, and recommend.