Jijenge Credit taps growing education loan demand amid Covid crisis

A growing number of Kenyan parents are finding it hard to resourcefully invest in their children’s education amid tough economic conditions and exorbitant tuition costs.

It is even worse with most workers out of employment due to the adverse effects brought by the Coronavirus pandemic – a factor that has seen a host of employers either scale down operations or close shop owing to reduced profit margins.

As a result, most Kenyans are flocking Microfinance Institutions (MFIs) for quick loans.

“The cost of education in this country is becoming unbearable. We are not feeling the perceived ‘free-education’ policy by the government,” comments Vincent Otieno, a Nairobi resident, expressing his frustration at the high tuition costs and education materials including books.

Microlender, Jijenge Credit Limited in an interview with Business Hub say a bulk of the demand driving loan growth is arising from education loan financing and business expansion loan, with the former coming handy in this quarter – a period that saw most schools reopen for the first term.

Some lenders continue to offer multiple relaxation and repayment breaks to attract borrowers who have avoided fresh loans since the pandemic cast a shadow over jobs and incomes for most Kenyans.

“In the last three months, we have noticed a unique trend. While majority of loan request have been business related, we are seen a growing number of our customers signing up for loans to cater for their education needs, which is relatively higher compared to the same period last year and the year before,” says Peter Macharia, the Chief executive of Jijenge Credit Limited.

Shadow banking

Shadow banking refers to any type of lending provided by financial institutions that are not commercial banks and not regulated as banks.

Like traditional banks, shadow banks rely on short-term funds to make longer-term loans and rely on money from investors for making loans.

Repayment rates or collection rates for most shadow lenders have seen a steady rise in over a year to over 95 per cent since the pandemic strike, according to Mr Macharia.

“This is better than what we had previously witnessed in the three months preceding July last year when the Central Bank made a plea to financial institutions on moratoriums. And demand for loans has tremendously increased since the turn of the year,” says Macharia.

Microfinance is a popular mode of borrowing among borrowers also called microcredit, is a type of banking service that allows people to take on reasonable small business loans safely, and in a manner that is consistent with ethical lending practices.

And like conventional lenders, micro financiers charge interest on loans and institute specific repayment plans – which is sometimes prone to default.

This is particularly challenging as it pits the lender’s need for institutional survival against the difficult circumstances of the defaulting customer.

Cost of education in Kenya today

The cost of studying in a public school would ordinarily cost between $500 and $600 per year, compared to between $700 and $1000 per year for private schools, while international schools charge over $3000 per term. There are 3 terms in a year.

Kenya’s national educational system consists of three levels: eight years of compulsory primary education (beginning at age six), four years at the secondary level, and four years of higher education. 

The government provides free primary and secondary education.