Causes of Bad Debt/Loans, Part 2

In our last article, we stated that life presents us with multiple opportunities which are time-bound. Most times we are not able to seize opportunities because of fear of failure, risks and or lack of funds to start off. “Good loans” help us maximize on good business opportunities; these are loans whose cost is lower than the rate of return, taken with a clear purpose, with a clear repayment plan and paid within the shortest time.

However, the rate at which Kenyans are accumulating personal debt is alarming and experts have warned that it is significantly threatening their own financial stability.

We discussed the first four (4) reasons why people fall into “bad debt” and these include; Spending money you have not yet received, borrowing to buy depreciating items, becoming a surety for people who don’t pay their debts as well as living beyond your means.

Other reasons include;

  1. Not Having a Budget

“Failing to plan is planning to fail” – Winston Churchill. Not planning how to spend expected income in good time leads to misuse and misallocation of money. A good financial budget should have all your regular bills and mandatory payments; loan repayment, house rent, utility bills, salon, shopping, transport/fuel etc. It should also include bills that are not regular but likely to feature in that particular month(s); motor vehicle service, medical insurance premium, welfare contributions and how these commitments shall be met.

  1. Lack of Expenditure Records

Every time you make a budget make sure you compare it to your actual expenditure. Review the performance of the previous budget to identify sequence/ patterns. This guides when preparing the subsequent budget and provides an opportunity to review high spending areas and possible solutions. For instance, budget running to deficits every month school reopens can be reviewed by regular savings spread out through the term to reduce borrowing.

  1. Greed and Instant Gratification

Kenyans have a common slogan of “Kama si sasa ni sasa hivi” or “Life is short I must enjoy it now”,  “I must buy a car, I must have the latest hairstyle, I must buy a designer shoe, I must take my children to an expensive school.” These are the statements that lead people to taking debts so as to satisfy their needs. We all need to understand there is time for everything. As long as you keep saving and investing wisely, you will one day enjoy and afford those things without strain.

  1. Lack of a Clear Goal

Lewis Carroll quoted that “if you don’t know where you are going, any road can take you there”. Lack of defined short, medium and long term goals is a major cause of bad loans especially due to impulse and emotional buying. Without a clear plan, one can be swayed by an advert on “Buroti maguta maguta” and rush to take a loan to buy the plot because everyone else seems to be investing in land.

  1. Addictions

Many people have entered into debt to satisfy their addictions like drugs, alcohol and internet browsing. Availability of mobile loans has made this worse because money is readily availed on phone with minimal restrictions and one can borrow from multiple institutions at the same time. In the long run, these addictions end up destroying families and some auctioned because they were unable to pay off the loans.

These addictions are mostly influenced by lifestyles and the solution lies in changing the way of doing things gradually.


Nobody should fear getting into debt as long as it fits into the category of “good loans”. It is highly unlikely to get into huge investments without seeking funding from your financial partner such as ourselves. At Amica Savings & Credit, we not only offer loans to our members but we offer financial advisory services to see that members lives are transformed for the better.

Our loan products are tailor-made to meet specific needs and they include but not limited to; Agribusiness loans, working capital for business, Asset Finance, Project finance, Salary loan, Society produce Advance, Society working capital, Chama loan among others.

Need a friend to help you Plan Smarter so you can Live Better? Talk to us!