7 Proven Passive Income Ideas in Kenya - 2023

Photo by Yuri Krupenin / Unsplash

Having many income sources is one of the most reliable ways of building wealth.

Not only do they help you become self-sufficient, they also unlock resources that enable you to invest more, thereby making even more in the future.

But since it’s impractical to work several jobs at the same time, it's necessary to divorce active effort from income. How can you keep earning even without continuous, direct work?

In this article, we’ll explore how to do this through the idea of passive income. We’ll then highlight 7 proven passive income ideas in Kenya in detail, including:

  • Dividend stocks
  • Bonds/Bond funds
  • Real Estate Investment Trusts (REITs)
  • Money market funds
  • High-yield savings accounts
  • Content
  • Crypto staking

But before we get into all that, let’s first cover some basics…

What is passive income?

Passive income is earnings made from sources that don’t continuously require active work or effort to produce. It’s money earned from sources other than active employment or contracting.

There’s a hands-off quality to it because, unlike active income, passive income requires only a little upfront work. Once the income source is operational, there’s no need for constant attention – it keeps generating money all on its own.

It’s important to note, however, that passive income is not a get-rich-quick scheme. Some passive income streams take time to cultivate and even once they are up and running, they’ll still need occasional work to maintain. But other than this little maintenance effort, you won’t need to show up and work each day.

There are many ways to get or create something that generates money even when you’re not working. Here are the most common ways to do that in Kenya.

8 passive income ideas to unlock your financial freedom

1. Dividend stocks

Dividend stocks are the shares of companies that pay their shareholders. Profitable companies usually share some of their profits with their investors, and these shared profits are called dividends.

In Kenya, you can buy shares of such companies at the Nairobi Securities Exchange. All you need is to find a licensed stockbroker, open a brokerage account, and start buying. Dividends are paid per share, so the more shares you own, the more income you receive.

Keep in mind, though, that not all shares are dividend stocks. Only high-quality companies pay dividends, so vetting all shares before you buy them is crucial. To be sure, look for blue-chip stocks because they are profitable and reliable dividend payers.

Read more: How to buy shares in the Kenyan Stock Market

2. Bonds and bond funds

Bonds are loans that you lend to either companies or the government. In exchange, the borrowing organization pays you an agreed interest amount until the end of the loan duration. After that, you’re refunded the principal amount.

They provide a good passive income stream because you simply have to hold the bond until maturity to enjoy regular interest payments. What's more, you can receive constant interest payments by using the laddering method to buy a series of bonds with successive maturities.

There are a few ways to buy bonds in Kenya: directly from the treasury, through a stockbroker, or through a bond mutual fund.

For beginners, buying through the treasury or a broker can be costly because they are sold in multiples of KES 50,000. However, bond mutual funds are affordable so for as little as KES 500 you can start earning income from bonds.

Suggested: How to Invest in Bonds in Kenya

3. Real Estate Investment Trusts (REITs)

If you’re looking to earn money from real estate without the hassle of purchasing, managing, or dealing with tenants, then REITs offer the most ideal option. A REIT is simply a company that owns and manages real estate.

It works by pooling money from like-minded investors, using it to either buy or develop real estate and thereafter manage it and generate an income from it. This income is then distributed to the investors, much like companies distribute dividends to their shareholders.

There are two prominent REITs in Kenya: Fahari I-REIT and the Acorn REITs. They both own residential and commercial properties from which they earn rental income. Fahari I-REIT shares can be bought from the NSE while the Acorns REIT can be bought from the Vuka platform.

4. Money market funds

Money market funds are a type of mutual fund that invests in low-risk, short-term debts like government bonds and corporate debts that pay high interest.

Like other mutual funds, MMFs pool money from a lot of investors and then invest them by buying bonds and other low-risk debt securities. They usually pay their investors on a monthly basis and they are also highly liquid, which means that you can withdraw your money fast on short notice.

There are a lot of money market funds so it’s important to select one that has the best features and interest rates. The typical MMF has an interest rate of about 10% but their rates fluctuate based on market factors. To invest, simply compare the rates, reputation, features, and past performance of the best MMF companies.

Investing in one typically costs anywhere from KES 1,000 to 5,000.

Recommended: 7 Best Money Market Funds in Kenya

5. High-yield savings accounts

Whether it’s for an emergency fund or for a vacation, high-yield savings accounts provide one of the best ways to increase your savings.

There are plenty of institutions that offer such accounts, but SACCOs offer some of the best interest rates – better than even traditional banking institutions. SACCO accounts pay some of the highest dividends, with some paying even up to 10%. These payments are usually made annually and they are based on your savings amount.

Alternatively, you can opt for a fixed deposit account with a traditional bank. Fixed deposits require you to keep your money in the institution for a fixed period (usually a year) and in return, you get a guaranteed rate of return. But if the money is withdrawn before the set time is up, you lose the interest earned.

6. Content

Whatever it is, content can take various forms - a blog, youtube channel, ebook, or online course. If you are an expert on a subject, have a passion for a craft, or can engage an audience with a skill, then this can be an avenue for extra income.

The idea is to get enough traffic and then monetize it through ads or sponsored content. And if the content is valuable enough, you could even sell it for a reasonable price and continue generating income from it long after you create it.

Like other passive income ideas, this will also require occasional maintenance to keep the content fresh and engaging. You might need to add or remove some details, use better keywords, post new content, and perform other related activities to update the information.

7. Crypto staking

Staking is whereby you lock your crypto in an account to help the crypto network validate transactions and ensure the network is secure.

It involves contributing your cryptocurrency to a network for a set period of time during which it is used by validators to verify and secure transactions. In return, you're rewarded with more crypto tokens for contributing to the network’s stability and robustness.

Now, this idea is one of the risky ones. Crypto itself is a highly volatile asset and staking carries even more risk. However, established platforms like Coinbase, Binance, and eToro offer reliable staking services. Through them, you can safely stake your crypto tokens without worrying about losing them to fraudsters and cons.

Things to consider when choosing passive income

1. Capital

Cultivating different passive income streams requires different start-up capital requirements. It’s important to go for something you know you can financially sustain and grow before it starts paying you back.

Streams like dividend stocks may be capital intensive, but there are alternatives like mutual funds that are cost-friendly. In most cases, if there’s a low financial requirement, it’ll mean investing more time and labor, so choose your best option.

2. Maintenance

This speaks to the effort required to keep the income stream functional and running after the initial set-up. When selecting a passive income stream, it’s important to choose one you can reliably maintain without it losing its effectiveness.

For example, it takes some effort to maintain content on a website but no effort at all to maintain the properties that come with owning a REIT. But, you get to keep all the proceeds that come from the website but only a fraction of what the REIT produces.

3. Risk

All investments carry an element of risk. There’s always a chance that something might go wrong and you’ll lose your investment. Or you might create something and not have it work out like you expected.

In principle, high-risk assets provide better returns than low-risk investments. So while dividend stocks are deemed riskier than high-yield savings accounts, for example, they are also more profitable in comparison.

It’s important to understand this risk correlation and choose the asset that best suits your risk tolerance.

What’s your passive income strategy?

Generating a regular and substantial amount of passive income will certainly take time. After all, if you are starting out, you will need to either create (content) or accumulate a decent amount of assets (i.e. shares, bonds, or cash deposits) in the first place.

This means you’ll have to create a habit and stay consistent with it. One way to do this is by establishing a Systematic Investment Plan (SIP) for yourself.