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Kenyan credit growth slows under interest-capping law 

By Ronald Njoroge NAIROBI (Xinhua) -- Kenya’s credit growth has slowed down to 4 percent per month in 2017 down from 18 percent in 2016 as a result of the interest-capping law, the banking industry umbrella body said Wednesday.

Kenya Bankers Association (KBA) CEO Habil Olaka told a media briefing that the law has made lending to small and medium enterprises too risky for commercial banks.

“Going forward the growth in credit is likely to shrink even further and this could have grave consequences for the economy,” Olaka said.

“The shrinking of credit especially to micro borrowers and small and medium enterprises is a concern for us, as this is the segment where Kenya depends on, for employment creation and sustainable economic growth,” he added.

The law came into force in September 2016 to cap the interest rates charged by commercial banks to no higher than 4 percent above the Central Bank Rate (CBR) and require paying depositors at least 70 percent of the CBR.

Before the law was operational, commercial banks provided loans at an average rate of 20 percent but currently the maximum rate allowed is 14 percent.

Olaka noted that the expectations that households and businesses would flock to banks to access cheap credit has not materialized.

KBA said that currently loans disbursement is concentrated on the household, trade, manufacturing, building and construction sectors, all of which accounts for 70 percent of the credit market.

Olaka said credit to the private sector was already on a downward trend even before the enactment of the law.

“Therefore the interest rate capping law introduced in the volatile market worsened the credit conditions,” he said.



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