In a column published on November 22, 2018, the writer argues that Kenya’s credit market has swung back toward the conditions that made borrowing punishing in the early 1990s. The piece links that shift to heavy government borrowing, tighter bank lending, and the squeeze on small businesses that depend on affordable cash flow.
The author says his own experience in 2007, after returning to Kenya and entering the petroleum trade, showed how access to capital can determine whether a small business survives. He describes a period when banks were eager to lend, mortgage rates had fallen sharply, and business financing was easier to obtain than it had been in earlier years.
From liberalisation to expensive credit ¶
Looking back to 1991, the article says interest rates were liberalised under President Daniel Moi, creating a laissez faire economic environment. That change, combined with heavy government borrowing from the local market through Treasury Bills offering more than 30 per cent interest, pushed banks to prefer lending to the state over lending to small-scale businesses.
The writer notes that borrowing costs reached an extreme in 1993, when interest rates peaked at 38.9 per cent. In that climate, banks had little incentive to take risks on ordinary borrowers, and the government remained the safer customer.
By contrast, the article says Mwai Kibaki’s presidency brought a major shift. The government reduced its reliance on commercial banks, while Kenya Revenue Authority collections rose from around Sh200 billion a year to more than Sh900 billion. With more liquidity in the banking sector, lenders had to compete for customers instead of parking money in government paper.
The writer says that environment helped lower interest rates and opened credit to smaller enterprises. He suggests that the policy effect was not accidental, but part of a broader effort to support local business and increase competition among banks.
Why the writer says the cycle has returned ¶
The article warns that Kenya is now moving back toward the same pressure points seen in the 1990s. It says the government has returned to heavy borrowing from commercial banks, especially after interest rates were capped, and that banks have again shifted toward financing National Treasury needs for Jubilee’s infrastructure projects.
According to the piece, this has left small businesses competing with the state for limited funds. Because the government is viewed as a safer borrower, banks are said to be channeling available cash toward public debt instead of private enterprise.
The writer frames the situation as a classic case of scarcity: when demand for money rises, the price of borrowing goes up and access becomes harder for those least able to absorb the cost. He says this is why people now talk about money having “taken a flight,” arguing that liquidity is being absorbed by government borrowing.
Austerity, taxes and the cost of debt ¶
The article also discusses austerity measures and debt management. It says governments use such steps to balance budgets, but warns that the approach can hurt citizens if it cuts medicine, critical infrastructure, or pushes taxes too high.
One example given is the recent increase in taxes on fuel, especially kerosene. The writer says the move has caused distress and notes reports that kerosene consumption dropped by 25 per cent, a figure he says raises questions about the policy’s effect.
He argues that Kenya could reduce its borrowing needs by limiting wastage and corruption. In his view, the revenue already collected would be enough to fund development if it were used more efficiently.
The column closes with a call for a more rational policy mix that would reduce borrowing and allow banks to return to lending businesses so they can grow. The writer is identified as the executive director of the Frontier Counties Development Council.
