EDITORIAL: Stop restricting lending

cash money
Banks must now resume lending to small businesses and households. FILE PHOTO | NMG 

When the interest rate caps were introduced in 2016 limiting borrowing rates to four percentage points above the Central Bank Rate, financial institutions were up in arms.

While the move was aimed at injecting new capital by spurring lending by making credit affordable, the opposite happened. Banks stifled lending to individuals and SMEs and started solely focusing on government securities.

However, the return to pre-rate cap profits reported by banks is a clear indication that the rate caps are working. Kenyan banks collectively earned Sh58.6 billion net profit in the six months between January and end of June.

Banks must now resume lending to small businesses and households while the Treasury must tame its appetite for debt to stop crowding out the private sector. The only way the Kenyan economy can grow is by ensuring that credit channels are opened. Restricting credit only stifles growth and is detrimental for economic growth.