Quincy Bakers, a smallscale business supported by Kenya Industrial
Estate in Kirinyaga County in Kenya. Most SMEs struggle to get credit.
FILE PHOTO | NMG
Kenya is on course to renewing its $1.5 billion standby credit
facility with the International Monetary Fund after signing a deal with
selected banks to release close to Ksh1 trillion ($10 billion) in loans
to the private sector despite the prevailing rate caps.
This
comes after parliament rejected the National Treasury’s attempts to
repeal the interest rate caps, leaving the government exposed in its
renewed negotiations with the IMF for a facility that is designed to
cushion the economy against external shocks and raise its credibility in
the eyes of international lenders.
The EastAfrican
has learnt that the National Treasury has made a renewed commitment to
free credit to the private sector, now with rate caps in place, and to
reduce the fiscal deficit to as low as five per cent in the next fiscal
year (2019/2020) from 7.2 per cent in the last fiscal year (2017/2018)
as part of the new conditions to return to the IMF programme, which
expired in September 2018.
The EastAfrican has
further learnt that the government’s progress in promoting financial
inclusion also helped it win back the confidence of the IMF to restore
the country to the latter's two-year precautionary facility programme.
A government official privy to the negotiations told The EastAfrican
that the agreement, which was signed last week between the Central Bank
and top five banks to start lending to micro-, small- and medium-sized
enterprises was in compliance with the IMF’s new conditions.
The
five commercial banks—KCB, NIC Group, Commercial Bank of Africa,
Diamond Trust Bank and Co-operative Bank—and the Central Bank, last week
launched the pilot phase of a mobile loan product targeting MSMEs.
The five banks have set aside close to Ksh1 trillion ($10 billion) to lend to the MSMEs.
Under
this programme MSMEs will receive unsecured loans ranging from
Ksh30,000 ($300) up to Ksh250,000 ($2,500) with repayment profiles of
one to 12 months, at an interest of nine per cent per annum compared
with the current controlled rate of 13 per cent, considering that the
Central Bank Rate is now fixed at nine per cent.
“Small
and mid-size enterprises are the lifeblood of any economy, but many
have struggled to secure the necessary financing to continue operations
in the current economic climate,” said CBK governor Patrick Njoroge.
“IMF
has always been against the rate caps because banks have not been
lending to the MSMEs and have always concentrated on lending to the
government and other corporates, when they consider less risky,” the
source said.
“We have now talked to the banks to start
lending to the MSMEs and with banks agreeing to lend to the private
sector, IMF has problems with the rate caps,” added the source.
Inclusion
According
to the source, the government’s significant progress in attracting the
majority of its adult population into the formal financial system also
played a big part in softening the hardline stance of the IMF.
Barely
two weeks ago, Kenya’s National Treasury Cabinet Secretary Henry Rotich
told Reuters in London that Kenya expects to finalise a deal with the
IMF on a new standby credit facility in two months and that the fund was
not insisting on the removal of interest rate caps as a precondition
for a new deal.
“We are looking at a similar
arrangement to what we had before. We have everything on the table and I
would estimate that it won’t take us more than two months,” he said.
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