In November 2019, private sector credit growth jumped to 7.3% after a prolonged period of slow growth. This is welcome news for many businesses that lacked access to funds. The hike in credit growth in the private sector followed the removal of the interest rate cap law in October 2019.
In the past five years, Kenya suffered sluggish growth in Private sector credit. The rate fell to its lowest level in October 2017 when it posted 2% growth.
Interest rate caps introduced in September 2016 were largely blamed for the less than optimal credit expansion in the private sector. Additionally, an increase in non-performing loans contributed to the dip in private sector credit growth.
With limited access to loans, small and medium sized enterprises endured harsh times and some businesses closed down or halted their expansion plans. As a results, people lost their jobs and the SME sector recorded reduced productivity during that period.
Since the rate caps law was repealed in the last quarter of 2019, banks have increased their lending to the private sector. Additionally, banking stocks have registered remarkable gains in that period with the two leading lenders KCB Group and Equity Group posting share price appreciation of 24% and 50% respectively.
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