Growth in the Kenyan banking industry will remain stunted and will lag behind the wider economy which has been tipped to grow 5.8% in 2019 by respected British business magazine The Economist.
In its report, Promising Prospects for Sub Saharan Africa published on January 4, The Economist warns that the lending rate cap will continue to starve private businesses access to much needed credit.
Banks are now shying away from lending to Small and Medium Enterprises (SMEs) which are deemed risky and are instead investing in government bonds.
A study conducted by the Central bank of Kenya (CBK) whose findings were released in March 2018 showed that the law had done more damage than good. Different financial institutions including the World Bank have called on the government to repeal the law.
In its October issue of the Kenya Economic Update 2018, the global capital projects lender also faulted the law drafted by Kiambu Town MP Jude Jomo.
And now, The Economist has joined the bandwagon of economy observers calling for a review of the law.
“Growth in banking will, nonetheless, lag behind growth in the wider economy because of the controversial lending rate cap, which continues to suppress private-sector credit allocation. The cap may be revisited in 2019, but reform is not certain,” reads the report.
East Africa Economy
Kenya has been tipped to be the strongest performing economy in 2019 in East Africa while the bloc’s economy has been projected to be the best performing across the continent.
The Economist’s report also echoed a projection by the Institute of Chartered Accountants in England and Wales (ICAEW) that the East African will be the best performing economy across the continent in 2019.
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“Economic growth in Kenya-the sub region’s largest economy will remain buoyant in 2019, at a projected 5.8%—the same as the estimated outcome for 2018—underpinned by rising consumption and stronger investment,”
It further reads “Of the four sub regions into which we divide SSA (East Africa, Francophone, Central Africa and Southern Africa) growth is expected to be strongest in East Africa, at an average of 5.9% a year in 2019 20,” further reads the report