•Central Bank of Kenya’s Monetary Policy Committee (MPC) raised its base lending rate by 50 basis points to 8.75%.
•This is likely to push up the cost of credit in the country, which has averaged 14 per cent in recent months.
Image: HANDOUT
The appetite for borrowing in Kenya is evidently high going by Thursday evening activities after President William Ruto actualised his Financial Inclusion Fund also known as the “Hustler Fund”.
Millions of Kenyans went into their mobile phones trying to find out if and how much they can borrow.
It is currently one of the lowest interest rates, at 8%, but borrowers who will default, they will pay back with 1.5 per cent more which will take the interest on their loans to 9.5%.
This is slightly below Sacco’s rates which have for long been kept at an average 12 per cent per annum.
Digital lenders however have even cheaper rates, if you pay early.
For instance, Tala charges an interest rate of between 5-15 per cent depending on repayment duration.
Those paying within 21 days are charged a flat rate of 5-11 per cent while those who pay after 30 days are charged between 7-15 per cent.
In the banking sector, interest rates are also poised to increase after the Central Bank of Kenya’s Monetary Policy Committee (MPC) raised its base lending rate by 50 basis points to 8.75%.
This is to tame the rising cost of living.
This is likely to push up the cost of credit in the country, which has averaged 14 per cent in recent months.
Banks are also moving towards risk-based lending which means your credit score will determine how you get a loan and how much.
But basically, expect interest rates of between 15% and up to above 20 per cent for some banks.
Banks will continue to control the credit market where gross loans increased by 8.3 per cent from last year to Sh3.25 trillion, from Sh300 trillion in December 2020.
“The growth in loans is attributed to increased demand for credit by the
various economic sectors,” CBK notes in its banking sector report.
The net value of loans and advances provided by banks in Kenya reached around 2.9 trillion Kenyan shillings.
A good number of those seeking the Hustler Fund are among the 19 million borrowers listed on the Credit Reference Burea.
While 12 million unique borrowers have a record of performing loans, they are still struggling to access credit.
Those with Non-Performing-Loans total 7 million borrowers of which, 4.2 million are individuals who have borrowed from mobile phone digital lenders.
CBK has however unveiled a Credit Repair Framework that requires commercial banks, microfinance banks, and mortgage finance companies to work with their blacklisted borrowers.
The framework mainly seeks to improve the credit standing of mobile phone digital borrowers whose loans are non-performing and have been reported as such to CRBs.
Through the framework, the institutions will provide a discount of at least 50 per cent of the non-performing mobile phone digital loans, outstanding as at the end of October 2022.
They will then update the borrower's credit standing from non-performing to performing, after which the institution will enter into a repayment plan with the borrowers for a period up to May 31, 2023, for the balance of the loan.
Upon the expiry of the Framework, the credit standing of the borrowers with respect to these loans will depend on their repayment performance during the six-month period.
The apex bank is hoping the policies in place will improve the country’s credit market where millions have been locked out, albeit interest rates remain high.