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SMEs isolated as banks lend Sh2.5 trillion to big businesses

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Despite Micro, Small and Medium Enterprises (MSMEs) complaining of credit crunch last year, the 2019 Kenya Bankers Association (KBA) Shared Value Report shows that Kenyan banks lent out Ksh2.53 trillion to various sectors of the economy in 2018.

According to the report, banks lent Personal loans (Ksh700 billion), Trade (Ksh476 billion), Real Estate (Ksh392 billion), Manufacturing (Ksh320 billion), Transport & Communications (Ksh168 billion), Energy& Water (Ksh121 billion) and Building and Construction (Ksh118 billion).

Financial Services (Ksh92 billion), Agriculture (Ksh91 billion), Tourism and Hospitality (Ksh65 billion), Mining and Quarrying (Ksh10 billion) were the rest of the recipients of the warchest.

KBA has been one of the biggest critics of the cap on interest rates and has cited it as one of the reasons for the lack of liquidity in the market.

“The biggest headwind met by banks has been the Banking (Amendment) Act, 2016 which introduced interest rate controls and stymied private sector access to credit,” reads part of the report “The unintended consequences of the legislation was exemplified by the downward trend in credit to the private sector recorded between 2016 and 2018,”

In his budget speech for the Financial Year 2019/2020, Treasury Cabinet Secretary Henry Rotich proposed to repeal the law saying that it had done more damage than good to the economy.

In March, the High Court declared the law illegal but gave a one year grace period to allow MPs ammend the law.

Prior to the caps, the Kenya Bankers Association found that the MSME portfolio was growing at a rate of 15% per annum, which reduced to 6% by September 2016.

KBA also estimates that the cap on interest rates has led to a 1.4% decline in the Gross Domestic Product (GDP).

Bank lending to MSMEs fell by as much as 5.7% or Ksh13.8 billion between August 2016 and April 2017. At that rate, KBA also estimates more than Ksh40 billion has been redirected from enterprise development to government debt since the rate cap law was enacted.

{Read: CBK Governor weighs in on Banki-Benki debate}

However the lenders have been criticised for the stance, with stakeholders questioning why mobile lending apps are prepared to grant SMEs unsecured loans while the banks are not.

“I ask you, as the owners of credit it is time that you start changing how you look at how you deal with credit. We have a lot of young and innovative people. They may not have tittles but they have great ideas,” President Uhuru Kenyatta told banks’ CEOs during the launch of the new generation notes at the Central Bank of Kenya (CBK) on December 11, 2018.

“We can take on jointly the responsibility of training them on how to manage their accounts and how to manage their finances but at the end of the day that is of no use if they cannot access credit,” added the president.

{See also: Exports earn Kenya Sh613 billion in foreign exchange}

Kiambu Town MP Jude Njomo has also been vocal in his criticism of the lenders and has on more than one occasion stated that the banks are holding Kenyans ransom.

In May, the CBK launched Stawi, a mobile lending facility aimed at availing much needed funds to SMEs.

The fund is jointly managed by the Commercial Bank of Africa Limited (CBA), the Cooperative Bank of Kenya Limited, Diamond Trust Bank Kenya Limited (DTB), KCB Bank (Kenya) Limited and NIC Group PLC.

During its post-budget review forum last week, financial services and audit firm PKF expressed its concern at the state of the economy saying that banks are preferring to invest in government bonds since borrowers without collateral are considered high risk.

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