Credit cards in Kenya is a relatively obscure financial product that is shrouded in mystery, fear and disinformation that only a tiny percentage of Kenyans have ever considered signing up for one.
As of August 2018, only 250,000 Kenyans had credit cards in a market where over three million Kenyans qualified for one, according to the then-Barclays Bank of Kenya (Now Absa Kenya) which at the time held a 40% market share.
The low uptake of credit cards has been attributed to lack of information about this cash management option.
For example, did you know that with a net monthly income of as low as Ksh15,000 you can qualify for a credit card in Kenya?
This is the first article in an ongoing series that seeks to equip Kenyans with the information one would need to decide whether a credit card is a good option for them.
A credit card is a rectangular-shaped plastic card (much like debit or prepaid cards) given to a client by a financial services firm, for instance a bank, that allows the holder to pay for goods and services using borrowed funds.
The cardholder then pays back the funds either in full or installments depending on their preference.
One differentiating feature of credit cards from other forms of credit is the interest-free period (which in the Kenyan market ranges from 30-55 days - meaning as long as you pay back the money owed within that period, the total cost of credit for you will be zero).
The interest-free period is the number of days after a purchase with a credit card that no interest is accrued on the purchase amount. For example, if you purchase a Ksh5,000 item with your credit card, no interest will be charged on that Ksh5,000 until the interest-free period lapses (typically 30-55 days).
If you pay back the Ksh5,000 in full within that period, then no interest will be charged. You will only pay the interest on the amount if you exceed the interest-free period.
Compare that to taking a mobile loan or a salary advance loan for the same period of time and you can see how credit cards could potentially be a good option.
The money can be paid back in full or in installments. The financial service provider sets up what is known as a monthly revolving credit line for the client with a set limit from which the credit card holder can borrow from.
You can opt to either repay in installments or in full depending on your needs as long as you do not exceed the limit. If you opt to pay back in installments, the minimum repayment amount (defined below) is interest free while the roll-over amount is charged interest.
If, for example, your credit limit is Ksh100,000, and you’ve spent Ksh20,000 to restock your shop, you still have access to Ksh80,000 to fund other needs.
Credit and debit cards are similar in some instances. The two carry the names of the issuer, are often made from plastic and both can be swiped to buy goods and services.
Whilst a credit card uses borrowed funds from the issuing institution to pay for goods and services, a debit card uses money that is deposited into a bank account by the card holder.
With a debit card, the user is limited to the amount of money they have in their account but a credit card holder is limited by credit limit as assessed by the card issuer.
Credit cards generally tend to have more benefits such as discounts, cashbacks and preferential treatment at airports etc. than benefits generally associated with debit cards.
Issuing institutions offer these benefits on their credit cards as a way of differentiating their offerings from other financial institutions. This can be very beneficial to you as the user if used properly.
Depending on how well a credit card holder repays amounts borrowed, the lender often revises credit limits upwards. However, debit cards do not increase one's credit history - they are solely dependent on the amount one has in their bank account
Simply put, a debit card is an easy way to spend/use the money you have in your bank account, while a credit account is a credit line that allows you to smoothen your monthly expenses or make a big purchase you don't immediately have the money for.
Credit cards are issued by commercial banks in Kenya. To get a credit card, one must be 18 years and older, have a regular income and a credit history.
Different credit card issuers (typically banks) will have differing eligibility levels especially when it comes to income levels for different kinds of cards.
When income is strictly considered, Money254 research shows that anyone with a net monthly income of at least Ksh15,000 can qualify for a credit card. Different banks have different net income minimum requirements to qualify for a credit card. You can compare the requirements here.
As income increases, so do the benefits associated with owning a credit card including cash back options, travel insurance and shopping discounts.
A credit card allows the holder to pay for goods and services conveniently without worrying whether they have money in their account at that particular moment.
The short-term credit provided can be very useful in instances where one is hard on cash and needs to make an urgent purchase or pay an important bill.
A credit card also allows the user to earn while they spend.
This comes in the form of a cash back amount on qualifying purchases, discounts from specific merchants, or additional travel related benefits, such as free travel insurance or airport lounge access, when you use your credit card to make the qualifying purchase.
For example, the Standard Chartered Visa Infinite Credit Card offers;
The SBM Bank Visa Gold Credit card offers;
The Absa PLC Platinum Credit Card offers;
However, you should be aware that if you do not pay back the borrowed funds within the interest-free period the interest could eventually surpass the benefits accrued.
For those looking to venture into business, a credit card can be the perfect way to build creditworthiness. An improved credit score means the holder qualifies for more credit or loans to start, expand or diversify their venture.
If, for example, you need Ksh100,000 to restock because your debtors are yet to pay you, instead of taking a short-term loan, you can use a credit card to buy the stock that you need and if your debtors pay within the average interest-free period of 50 days, you can repay the credit card ‘loan’ with zero interest!
Compare that to a 60-day short-term loan that charges you a 10% interest per month.
Credit cards ensure the security of funds. When a debit card is used by a fraudster, the money is instantly deducted from the holder's account. What is more, it takes time for the money to be reversed while the bank investigates.
Comparatively, when a fraudulent transaction is detected or reported after using a credit card, the holder will rarely incur any loss - this is because the amount lost was not actually withdrawn from the cardholder’s account but from the card issuer’s account. One simply notifies the credit card company and is not charged for the transaction while the issuer resolves the matter.
Credit cards often come with a number of protections for the consumer that most are unaware of such as product warranties that go beyond the manufacturer's issued guarantee.
For example, NCBA’s Infinite Credit and NCBA Platinum cards offer a 24 month extended warranty and up to $20,000 (Ksh2.24 million) buyer’s protection on purchases. The Standard Chartered Visa Platinum Card offers purchase protection and extended warranty of up to $1500 (Ksh168,200).
Most credit cards are universal, meaning you can pay for goods and services from anywhere in the world. Note that most debit cards too are progressively acceptable globally.
As is the rule with anything borrowed, it has to be paid later. If the borrower fails to pay the balance in full as per the agreed time, interest payments start to bulge.
If not careful, the debt can spiral out of control. Paying off only the minimum amount will make the debt expensive in the long-run.
If you tend to spend more than you make and are unable to stay within the credit balance, then these cards are not for you. Credit cards require a high level of financial discipline.
There is also the temptation to spend more than planned while chasing the very enticing benefits offered including VIP lounge access at the airport, free monthly golf games, big purchase discounts and cashbacks.
Annual Fee: Many credit card providers charge cardholders an annual fee. There are a few that do not charge an annual fee, meaning they are free to operate.
Joining Fee: Initial amount charged by the card provider to hold a credit card. Most banks in Kenya do not charge a joining fee
Monthly Interest: The monthly interest charged on the outstanding amount after the interest-free period lapses
Interest Free Period: This is the period (in days) within which you can fully repay the borrowed amount without incurring any cost. In Kenya, this ranges from 30 - 55 days depending on the credit card issuer.
Minimum Repayment Amount: This is the smallest amount of the amount spent/borrowed (expressed as a percentage) that you are required to repay each month.
This only applies if you have used the card to pay for something, otherwise credit cards do not have any monthly fees or maintenance charges if not used. .
Note that making minimum repayments only could cost you more in the long-run and increase the period that it takes you to clear the amount owed.
Minimum Net Income: The minimum amount in net income that you need to be earning to qualify for a credit card. In Kenya, you can qualify for a credit card with a net income as low as Ksh15,000.
Card Limit: The maximum amount of credit you can get with your credit card which is typically determined by your net income. Some credit card providers also have different limits for salaried and self-employed cardholders.
Cash Advance: Credit cash advance is the use of your credit card to withdraw cash from an ATM. You’d essentially be using your credit card as a debit card but instead of paying for a product or service, you are borrowing against your credit card for hard cash. This usually doesn’t have an interest-free period and attracts a Cash Advance Fee (typically 5-7%) . Note that it is advisable to use cash advances for emergencies only.
Late Payment Fee: When you pay your credit card bill late, a fee (typically expressed as a percentage) will be incurred.
Over-the-Limit Fee: This is a penalty that is charged when you exceed the maximum limit or balance on your credit card. This is usually a percentage.
Credit cards are a convenient way to buy goods and services whilst building credit history that might be beneficial to your future borrowing.
Credit cards are also a great way to manage day-to-day transactions when you are short of cash or expect a future payment within the interest-free period.
But with any credit facility, there is a risk of getting trapped in the debt cycle especially if one is not financially responsible.
We recognise the general scarcity of information on credit cards in Kenya, which is why we have just launched Kenya’s first credit card comparison portal where you can compare the credit cards you qualify for on your own terms depending on what use you want to put the credit card to.
Check out our credit card comparison portal and see the different interest rates charged, the range of benefits and rewards offered by different card providers in Kenya as well as the interest-free periods.