Fanaka TV in Collaboration with the Kenya Bankers Association and the Institute of Economic affairs convened a forum bringing together Private sector, Economists, Members of Parliament, Consumer rights advocates and the Public to discuss ways of moderating the cost of loans in a sustainable way.
Since the introduction of the Interest Cap Law in September 2016, the number of loan accounts has reduced more than 1.23 million accounts while the growth of the private sector continues to deteriorate with banks opting to invest in government securities. The credit market has suffered further volatility as the level of non-performing loans increased to more 12 per cent due (Ksh 292 billion) due to the challenging business environment that was witnessed last year and earlier this year.
“Before the capping of the interest law the loans were available but not affordable whereas today they are affordable but not available. We would want to ask the government to limit its borrowing since it is competing with the normal mwananchi and become innovative.” Jude Njomo Member of Parliament Kiambu Central
During the presentation of the 2018/2019 national budget.
C.S National Treasury Henry Rotich had stated that the government would put in place a package of reforms aimed at optimizing lending to the private sector while at the same time encouraging innovation of the financial services sector.
“I propose to amend the Banking (Amendment) Act, 2016 by repealing section 33B of the said Act. This is to enable banks and other lenders to provide more credit especially to borrowers they consider riskier,” Mr Rotich said.
To cushion borrowings, Treasury has proposed the setting up of the National Credit Guarantee Scheme (NCGS) as a policy tool to direct credit to micro small and medium enterprises. The government will also be merging a number of its lending institutions to create stronger lenders to avail credit to SMEs.
Cabinet has already approved the creation of the Biashara Kenya Fund by merging Uwezo Fund, Youth Enterprise Development Fund and Women Enterprise Development Fund. The Treasury will also be tabling the Financial Markets Conduct Bill which among other things will seek to regulate fees, commissions and interest rates set by banks.
Mr. Njomo is certain the banks are still colluding causing a credit squeeze so that the government can compromise like it has done persuading Parliament to remove the interest rate cap.
“As much as the banks are colluding the members of parliament should put their fists down by reducing the fiscal deficit while achieving better goals with less money every budget year.” Kwame Owino CEO Institute of Economic Affairs.
Development Economist Anzetse Were, says the conversation sheds light to two sides of the private sector, one side for the repeal of the interest cap so that access to credit is easier while the other business players are counteracting this thought by saying that buying of the government securities by the banks will saturate particularly caused by the projected fiscal consolidation of 5.7 per cent from 7.2 per cent, having to deal with the SMEs.
CS Rotich further noted that they are working on a proposal that will regulate all lenders, including banks, in a bid to make credit more accessible and affordable. The proposal, will involve analyzing borrowers with different risk profiles to ensure lending rates are based on them, is among suggestions contained in the Financial Markets Conduct Bill 2018.
“Access to credit for our SMES has been bad, the engine of our economy is the SME and entrepreneurs and we need them to access credit so as to propel the economy forward. This has severely stunted the growth projections for the last couple of years. They have resulted to shylock lending which is not sustainable for a growth economy.” Sanchen Gudka Vice Chairman KAM.
“Before the capping of the interest law the loans were available but not affordable whereas today they are affordable but not available. We would want to ask the government to limit its borrowing since it is competing with the normal mwananchi and become innovative.”
“We have to completely isolate the CBR rate as a basis of access of credit, to allow banks to price themselves with different instruments for the cost of credit. “ concluded Joshua Oigara KCB Group CEO.
