EDITORIAL: Central bank warning on lending welcome

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Summary

• Businesses need access to credit in order to grow and if they are denied this vital pipeline in their wheels of development their growth stagnates or collapses.

The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG 

When the law capping interest rates came into force in September 2016, small borrowers like individuals and SMEs thought that they would finally get to reap from the new development.

The intended goal was to lower costs for individuals and businesses. However, that never came to
pass as banks on their part slowed down or halted lending to this vital segment and instead focused on lending to government and big businesses where they were assured of higher returns.

The financial institutions took the easier way out by solely focusing on big companies that have the financial muscle and the government at the expense of individuals and small businesses. But even as the banks became more cautious about lending to individuals and small businesses, the general economy of the country suffered a crunch as the slowdown took a toll.

Businesses need access to credit in order to grow and if they are denied this vital pipeline in their wheels of development their growth stagnates or collapses. Data from the central bank shows that private sector credit growth grew by just 3.4 percent in the year to February, which is well below the regulator’s target rate of 12- 15 percent that is needed to support economic development.

It therefore came as a welcome relief when the Central Bank of Kenya warned last week that bank executives would be jailed if they failed to allocate 20 percent of their lending to small and medium enterprises.

The new rules are contained in Kenya Banking Sector Charter, which prescribes a fine not exceeding Sh100,000 for bank officials or a jail term not exceeding two years.

It is a well-known fact that SMEs are a key cog in the growth of the country’s economy. If this vital segment of the economy is denied funding by banks, the country’s economy will be the main casualty.

We cannot allow that to happen and the onus is now on the banks to meet their end of the bargain. The banking sector regulator deserves to be commended for cracking the whip on the financial institutions.

Borrowers will be relieved that the banking regulator has their back when it comes to pushing for access to vital credit. While we aver that the banks need to change their strategy and help grow the economy by opening up access to credit, the key lies in being proactive by helping the small segments of the economy to play their role in the general growth of the country.