Kenya tapped Sh96.3 billion in loans from savings and credit cooperatives (saccos) to pay school fees and related expenses last year, underlining the growing burden of education in private institutions amid falling standards in low-cost public schools.
Recent data released by the Sacco Societies Regulatory Authority (Sasra) shows that loans to pay expenses are second only to loans for the purchase of land and residential houses at Sh124.2 billion, which is usually the main focus of credit unions.
Overall, sacco members issued new loans worth Sh460.5 billion by 2023, with loans for school fees accounting for 21 per cent of loans issued in that period.
The agriculture sector, which accounts for the largest share of Kenya’s gross domestic product (GDP), came third with new loans at Sh78.1 billion, followed by trade at Sh58.2 billion.
This comes at a time when most households prefer to send their children to private schools where class sizes are smaller, facilities are more advanced and performance in national exams is generally better than public schools.
When the government introduced free primary education (FPE) in 2003, school enrollment almost tripled, without facilities and resources to expand rapidly in what watered the market for the growth of private schools.
But private schools are more expensive and are emerging as profitable enterprises that attract investors and private equity funds.
Average wages in real terms have fallen for the fourth year in a row as falling standards push workers to take out loans for basic goods like schooling, health and food.
“We have seen a continuation of the upward trend in school fee loan applications when schools open, with January being the peak of funding requests,” said David Mategwa, chairman of the Kenya National Police Sacco.
“The loans taken are not only short-term facilities, but generally between one and three years, depending on the borrower’s qualifications.”
The majority of saccos offer loans for certain school fees, with a tenor of up to 24 months with a reduced balance and twice between three and five times the member’s deposit.
Some saccos process and disburse credit on the basis of the same day, and do not require a guarantee on the same.
On its website, Mwalimu National – the largest deposit taking sacco in Kenya by assets – said that the school fee loan is offered at a rate of one percent per month with a reduced balance, with a maximum tenor of 24 months and multiple times. five times the member’s savings.
Kenya Police Sacco offers a 12-month loan at 12 percent per year to reduce the balance subject to four times one deposit, while Stima Sacco’s emergency school fee loan is offered at three times one deposit, for a tenor of up to 15 months.
Sasra tracks credit disbursements to eight broad sectors, the others being manufacturing and service industries, human health, consumption and social services, and finance, investment and insurance.
This is the first time Sasra has provided details on the number of new loans placed by saccos in a calendar year per sector, previously only providing a percentage of sectoral loans without an overall amount.
Changes in the education landscape have led to an increase in demand for school tuition loans.
Enrollment in private schools-especially primary schools-has risen over the years because the number of new participants outstripping the government’s ability to provide space in public institutions, partially reflecting fiscal constraints in the Treasury.
Official data from the Kenya National Bureau of Statistics (KNBS) shows the number of private primary schools registered in Kenya increased by 30 percent or 2,681 institutions to 11,739 schools between 2019 and 2023.
At the same time, the number of public primary schools in the country only increased by 2.3 percent or 545 to 23,831.
The free basic education program has for years also disrupted facilities in public schools, prompting parents to choose private institutions with better conditions including teacher-pupil ratios.
Away from school, difficult economic conditions also push parents to borrow to send their children to school.
Last year, the economy experienced high inflation – 7.7 percent on average for the year – which raised overall household spending on key items such as energy, food, transportation and rent at a time when earnings were contracting.
Real wages in the country fell for the fourth year in a row (4.1 percent) as high inflation wiped out the 2.8 percent pay increase given to workers in the period.
School fees are also affected by higher inflation, with parents having to pay for uniforms, books and transport costs for their children.
This informed the turn to saccos for credit financing, with cooperatives having an advantage over banks on account of less stringent credit conditions and friendlier interest rates.
Saccos can lend members with the strength of savings-and in three to five savings-being a convenient source of credit without the demand for collateral that will take time to fill in the case of banks.
Saccos also charge lower loan rates compared to banks. The average annual interest rate is between 12 and 16 percent for most regular loan products, while banks charge upwards of 20 percent (base rate plus risk premium).
