Enterprise

Ministry assures rate review won’t hurt small traders

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Mr Adan Mohamed, Industry and Trade Secretary. FILE PHOTO | NMG

The Industry and Trade ministry has vowed to ensure that imminent review of the cap on loan charges will not subject small and medium-sized entrepreneurs (SMEs) to high cost of credit.

Industry and Trade secretary Adan Mohamed says MSMEs, the dominant business segment in the country, will receive as much support as possible from the government since their survival is critical to a thriving economy.

The Banking (Amendment) Act, 2016, which capped loan charges at four percentage points above the Central Bank Rate, was largely aimed at enabling the smaller business and retail customers get loans at affordable rates.

Central Bank of Kenya governor Patrick Njoroge as well as Treasury secretary Henry Rotich have recently dropped hints that the law will be reviewed soon, a review which commercial banks have been strongly agitating for.

“The rate cap the financial institutions have told us has had undesired consequence which require review to ensure the MSMEs do not end up as losers,” Mr Mohamed told the annual Top 100 mid-sized firms gala a fortnight ago. “These are things that we should be prepared to relook to make sure they serve the purpose which they were intended to.”

SMEs, Mr Mohammed added, remain the biggest creator of new job opportunities and variety of products for domestic consumption and exports to regional markets, spurring  competition and benefiting consumers through affordable pricing. Their growth and development has, however, been largely curtailed by limited access to affordable capital.

The smaller businesses have borne the biggest brunt of credit rationing by the risk-averse commercial banks since the rate cap was enforced on September 14, 2016.Growth in private sector credit, which was already slowing on account of rising provisions to cover for accumulating bad debt, has been exacerbated by interest controls.

READ: Central bank sets stage for repeal of interest rate caps

Latest data by the Central Bank of Kenya (CBK) shows growth in lending to the private sector has dipped to a new low in more than two decades to 1.7 per cent in September.

CBK governor Patrick Njoroge said in September called for review of the rate capping law, citing preliminary finding of a joint study with the Treasury that the caps had slowed down credit particularly to the SMEs.

“All I can tell you is that it is in our interest as a country to work to reverse these measures and let ourselves go back to a regime with freely determined interest rates, but in a disciplined environment.

The central bank of course is keen on maintaining that disciplined environment,” Dr Njoroge said on September 13. 

The SMEs have been subjected to high interest rates due to perceived higher risks than corporates partly because of poor book-keeping methods, in addition to inadequate collateral.