Focus note

Strengthening resilience: Inclusive finance in Kenya

February 26th, 2021

 

Introduction

The COVID-19 pandemic has made clear that the capacity to withstand shocks is critical for sustained poverty reduction, well-being and long-term development. In a baseline scenario using projected global growth rates, the World Bank estimates that COVID-19 could generate 176 million additional poor at $3.20/day[1]. With the youngest population in the world, the impact on human capital in Sub-Saharan Africa – through greater food insecurity, school closures and reduced access to health care and nutrition for children and pregnant women – will also have profound effects on development in the long run.

In Kenya, with real GDP contracting by 9.1 percent in the second quarter of 2020, the World Bank estimates that the economic disruption brought on by COVID-19 has already pushed about 2 million Kenyans into poverty.

While the COVID-19 crisis has effects that are global, broad in scope and long lasting, its impact exacerbates an already risky economic landscape for ordinary Kenyans. In 2018, 35 percent of adults reported that their household experienced large financial costs associated with at least one major adverse event in the past year. In 2016, nearly 4 in 5 adults experienced a shock in the past 2 years. Of these, risks associated with climate, inflation and health were the most common (Figure 1)[2]. Nearly 2 in 3 rural households had to deal with a flood, drought or crop and livestock losses. Between 2014 and 2018, food prices rose at an average annual rate of 9 percent (Figure 2), a major stressor in a setting where food consumption makes up over half of typical monthly household spending. During this time frame, the percentage of Kenyan adults able to jointly meet basic needs, cope with risk and invest in livelihoods or the future fell from 39 to 22 percent (FinAccess). With COVID-19 destroying jobs, reducing incomes, depleting personal savings and exhausting other coping mechanisms, families have become acutely vulnerable to all the other unexpected shocks that may emerge in a ‘typical’ year.

 

 

[1] World Bank Project Poverty Impacts of COVID-19: http://pubdocs.worldbank.org/en/461601591649316722/Projected-poverty-impacts-of-COVID-19.pdf

[2] Forty percent of adults nationwide were affected by a rise in the cost of basic goods. In addition, 1 in 3 adults were affected by illness or injury in the 2014-2016 period.

Paul Gubbins is an independent research advisor to FSD Kenya. Twitter: @pgubb @FSDKe

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