The Central Bank has lauded efforts by some MPs to reignite lending to the private sector, especially to small businesses.
CBK governor, in response to a proposal by Gatundu South MP Moses Kuria, said it was good that parliament had noticed the law capping interest rates at four per cent above the Central Bank rate was choking the country’s economy.
‘’It is good they have started to acknowledge the contribution of SMEs to the economy. It is sad that some policies they make are destructive,’’ Njoroge said yesterday at a press briefing.
CBK data shows lending to the private sector grew 2.4 per cent in the 12 months to December, a marginal drop from 2.5 per cent growth reported over the same period in 2017. This was however a drop of 60 basis points compared to November.
Although Njoroge lauded the move to review the rate cap law, his stance remains that the law should be completely overhauled to encompass a system that allows banks to adopt a risk-based lending approach.
The data shows that while sectors with the strongest growth in private sector were finance and insurance at 17.5 per cent, consumer durables (11 per cent), business services eight per cent) and private households (6.8 per cent).
The data also shows lending to other activities slowed down significantly to -34.8 per cent compared to -5.6 per cent for the same period in 2017.
On January 15, Gatundu South MP Moses Kuria lodged a fresh bid to have the 2016 Banking (Amendment) Act reviewed.
In a letter to the National Assembly Speaker Justin Muturi, Kuria proposed the Act be changed to enable riskier SMEs and unsecured individual borrowers negotiate interest rates above the normal cap.
“Unsecured individual customers should negotiate pricing based on their risk profile and on a willing buyer, willing seller basis,” Kuria said in his letter.
According to Kuria the ceiling on interest rates for commercial loans should be maintained for low risk clients but the law should encompass a risk negotiation window of up to six per cent above the lending cap for SMEs.
Data by the Kenya National Bureau of Statistics shows there are more than 17 million SMEs registered in Kenya, with 98 per cent of the enterprises contributing 25 per cent of the country’s GDP and employing up to 50 per cent of the workforce.
The 2016 National MSME Survey also shows that banks only finance 5.6 per cent of licensed small businesses.
This is despite at least four out of every five small ( 87.9 per cent) and medium ( 80.6 per cent) sized establishments having a bank account with commercial banks.