The Central Bank of Kenya (CBK) has renewed its push for the
scrapping of controls on the cost of loans, terming the current interest
rates cap law as a drag on economic growth.
Governor
Patrick Njoroge said Tuesday the limited access to credit was hitting
small and medium-sized businesses hardest, yet they are key drivers of
growth.
“There is a potential soft spot (in the
economy). This concerns the micro small and medium enterprises (MSMEs).
MSMEs are at the bottom of the pyramid. The MSMEs is where the
employment is,” said Dr Njoroge at a media briefing in Nairobi following
Monday’s Monetary Policy Committee (MPC) meeting.
“These are traders in Gikomba, Muthurwa in Nairobi, in Kongowea
in Mombasa, mechanics in Ogopa Lane in Kariokor, traders in Kondele in
Kisumu or even furniture makers on Ngong Road. “All these are
institutions that are small and have substantial growth potential,”
added the governor.
“The question is how can, they
expand their businesses? Finance is part of the answer. In a sense in
2019 we need to deal with (the rate cap) otherwise it can be a drag on
the economy.
“This is the business we need to deal within the next few weeks, in the next few months.”
Banks
have rationed loans to small enterprises following the passage of a law
in September 2016 capping the cost of loans at four percentage points
above the central bank’s benchmark rate in an attempt to lower borrowing
costs for businesses and individuals.
Although the
aim was to help small traders access capital at affordable rates, the
rate cap had the opposite effect, as lenders deemed SMEs too risky to
lend to, arguing they could not price their default risk accurately
while the cap was in place.
The CBK data shows private sector credit grew by just 2.4 per
cent in the 12 months to December 2018, compared to three per cent in
November.
The credit growth remained well below the
central bank’s target rate of 12 to 15 per cent which is deemed adequate
to support economic growth.
Kenya’s economy is likely
to expand by 6.3 per cent this year, the governor said yesterday,
lowering an earlier projection of 6.1 per cent. Kenya’s economy expanded
faster in the third quarter of last year than in the same period the
previous year due to strong performance in the agricultural and
construction sectors.
The economy grew six per cent in
the third quarter of 2018, compared with 4.7 per cent in the same period
in 2017. Yesterday’s call is the latest clamour by the CBK boss who has
all along been opposed to the interest rate caps.
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