This archive report was first published on 21 December 2019.
Rate Cap Repeal: Will SMEs Now Swim in Cheaper Credit? ¶
December 21, 2019
After more than three years of a statutory ceiling on interest rates, the National Assembly has repealed a provision that had introduced the cap in 2016. The decision, which was pushed by President Uhuru Kenyatta, aims to enhance access to credit by the private sector, especially micro, small and medium enterprises (MSMEs).
Proponents of the move argue that this will unleash credit to MSMEs and help the moribund economy rebound. However, critics do not think that taps for cheap loans will be re-opened since the conditions that led to the capping have not been adequately addressed.
CBK Governor Patrick Njoroge has assured that banks will not go back to their wayward ways where they charged loans as they wished. He told banks to focus on helping Kenyans rather than making short-term gains.
ICPAK, a professional body for accountants, has called for a graduated interest rate cap as a medium-term measure. They suggest that banks segregate retail loans into their versions of prime and sub-prime risk exposure and use third-party credit scores to offer different rates.
Dr Njoroge has insisted that banks will be guided by a banking charter that will push them to be more customer responsive. The Monetary Policy Committee has lowered the Central Bank Rate (CBR) to 8.5 per cent, setting the stage for cheaper loans.
Only time will tell whether SMEs will be swimming in credit. Banks have come up with innovative products aimed at giving loans to SMEs, but it remains to be seen if these efforts will be enough to stimulate economic growth.
