The relationship between personal financial literacy and lending by commercial banks in Kenya
Personal finance is a highly deficient area globally and locally. Ideally, every single person should have a long term and short term financial plan guiding their everyday financial decisions. That is not the case. In Kenya today, the average person is financially illiterate even at the highest levels of education. This is mainly because the education system is not tailored to the needs of financial literacy. Even at the undergraduate and graduate levels, financial literacy is limited. This was an explanatory study where the research sought to establish a relationship between the use of personal financial literacy and commercial bank lending by Kenyan banks. A census survey was conducted involving all 43 Commercial Banks in Kenya registered and licensed under the banking act as at 31st December 2009 as per the Central Bank of Kenya. This study used primary data that was collected from the respondents of the survey. Data was collected through the use of detailed questionnaires issued to banks. Data was captured and analyzed using Statistical Package for the Social Sciences (SPSS) version 17. The data was analyzed using descriptive statistics where frequency tables, percentages, means and standard deviations, Graphs and charts were used to provide conclusions on findings. Based on findings, personal financial literacy does influence the lending decision by increasing the chances of approval of the loan facility, client understanding of the decisions and consequences is key and demonstrating serviceability. In addition those with better understanding of loans interests and repayment are more likely to get the loan. The level of education also plays a role. However, personal finance information in banks usually revolves around the products and services they offer. Customers therefore have little or no access to personal financial information from banks beyond the scope of the products. Most banks interviewed stated that to do otherwise would be time consuming and likely unprofitable hence the trend in the industry is to sell products but they strive to sell the most appropriate product or service to the customer. Most banks also have a variety of products and services tailored towards the key personal finance areas: Financial Position( Net worth ), Protection, Tax planning, Investment and accumulation goals, Retirement planning and Estate planning.