Only State can support banks to drive credit growth

In Summary

• Banking lending to SMEs declined by 5.7 per cent, or Sh13.8 billion in eight months.

• In March, the High Court ruled interest rate cap unconstitutional.

KBA chief executive Habil Olaka /FILE
KBA chief executive Habil Olaka /FILE
Image: file

Central Bank of Kenya’s incentives to commercial banks and financial products can help ease the credit crunch to SMEs in the next 11 months as the sector awaits for parliament’s amendment on interest rate cap.

Kenya Bankers Association chief executive Habil Olaka said CBK’s initiatives such as raising the cash ratio, government support by easier resolution in case of debt defaulting will push commercial banks to undertake initiatives to reverse the effect of interest rate caps.  

In the new 2019 Economic Survey by the Kenya National Bureau of Statistics, private sector credit growth declined by half into 2.4 per cent from 4.4 per cent in 2017.


Banking lending to SMEs declined by 5.7 per cent, an equivalent of Sh13.8 billion in eight months after interest rate cap was passed into law in September 2016.  At the same time, Sh40 billion has been redirected from enterprise development to government domestic debt.

“Government support and commercial banks' initiatives to support SMEs through attractive financial products in the year will give Parliament evidence that an amendment can change the situation,” Olaka said.

In March, the High Court ruled interest rate cap unconstitutional. National Assembly was given a year to reconsider provisions and clear any ambiguities in the section of the law.

Olaka spoke during the signing of a memorandum of understanding between KBA,  and Kenya National Chamber of Commerce and Industry (KNCCI).

The new move is expected to drive more financial inclusion initiatives in order to de-risk private enterprises and have easier access to credit.

The decline in lending to private sector is evident in with KNBS reporting a decline in new registration of lorries and trucks.

The number of the vehicles bought dropped for the third time in a row to 6,514 units in 2018 compared to 7,460 units in 2017 and 9,632 units in 2016, partly explained by businesses using Standard Gauge Railway in transportation of cargo from port to ease cost of operations.


According to KNCCI vice chair James Mureu, the corporation will accord both SMEs and the banking industry to improve the business landscape.

“The SMEs sector needs a concerted effort from all fronts to thrive and we are proud to engage with commercial banks to achieve this end,” Mureu said.