Traders are increasingly turning to supplier credit for expansion and restocking in a rising interest operating environment, which has made banks loans expensive, findings of a new survey said.
The Stanbic Bank’s Africa Trade Barometer report indicates that about six in 10 companies in Kenya were relying on credit arrangements with suppliers in May 2023 compared with four in September 2022.
The uptake of supplier credit, the findings suggest, is growing irrespective of the business size, signaling rising challenges in accessing finance in an economic setting where consumer purchasing power has been eroded.
“While corporations historically had a high uptake of credit arrangements with their suppliers —especially pre-Covid —small businesses are now also pivoting toward this source of credit,” research analysts at Stanbic Bank wrote in the report.
“This could be a reflection of the challenges in accessing finance through conventional channels in the medium-term, primarily driven by the persistent increases in the Central Bank Rate (CBR).”
Central Bank of Kenya, the financial markets regulator, raised benchmark interest rates by three percentage points in a space of one year through June 2023 as it sought to battle a runaway increase in the average cost of goods and services.
Increasing the central bank rate makes borrowing more expensive as banks use it as the base onto which they load their margins and risk profile of individuals and businesses when pricing loans.
The rise in the key lending rate, technically known as monetary policy tightening, usually increases the cost of money and is expected to prompt consumers to cut or postpone expenditure on luxurious goods and services. This helps fight inflationary from the demand side.
The increase in the CBR has seen the average cost of commercial borrowing climb to the highest levels in nearly seven years, piling expenses for businesses.
