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Piloting: Barclays’ Sh150m kitty to fund small firms:

http://www.businessdaily...25628-il0kqez/index.html

Cytonn Newsletter extract sunday 23/7/2017 (extract)

While interest rates have remained relatively stable at low levels, following the Banking (Amendment) Act 2015, private sector credit growth has continued to dip, coming in at 2.1% in May, from 3.3% recorded in March, and 20.9% registered in May 2015, as it is still better to lend to the government as the interest rates remain high on government securities, with a 5-year trading at 12.4%.

Given the current state of low lending in the economy, and that we are under a fixed-rate regime on interest rates, below are the initiatives that need to be taken to spur credit growth once again in the economy:

1. Repeal the Banking (Amendment) Act 2015, given the current regulatory framework has proved to be a hindrance to credit growth, evidenced by the continued decline of private sector credit growth, which is at 2.1% as at March 2017, compared to 5.4% when the amendment was introduced in August 2016,

2. Diversify funding sources, which will enable borrowers to tap into alternative avenues of funding that are more flexible and pocket-friendly. In more developed economies, bank funding accounts for just 40.0% of funding for businesses, yet in this market, bank funding accounts for over 95.0% of funding. Alternative sources of funding, especially capital markets based funding and competing alternative products need not only be developed but encouraged,

3. Consumer education, where borrowers are educated on how to be able to access credit, the use of collateral and establishing a strong credit history,

4. Increased transparency, in a bid to spur competitiveness in the banking sector and bring a halt to excessive fees and costs, with recent initiatives by the CBK and KBA, such as the stringent new laws and cost of credit website, being commendable initiatives, and

5. Improved and more accommodative regulation, such as the Movable Property Security Rights Bill 2017, which seeks to facilitate use of movable assets as collateral for credit facilities, allowing borrowers to use a single asset to access credit from different lenders.


While interest rates are currently at stable low levels, the risk lies in the rigid loan pricing framework that has seen the government crowd out the private sector and lock out “high risk” borrowers, with private sector credit growth now at 2.1% as at May 2017, which could end up impacting negatively on the economy because the private sector is a major job creator. Moreover, the free pricing of loans with no government interference is associated with higher credit growth, when compared to the fixed rate regime the economy is currently under.

[quote=ombaalbt]An indepth look at interest rate capping https://t.co/5pwgLb8tbL[/quote]

I like the parting shot. Banks should be allowed to price risk.

At this point...there are 3 possible outcomes:

1) status quo. capping remains
2) modified capping
3) abandonment of capping.

Ladies and gentlemen...kindly place your bets!

Governor Njuguna Ndungu speaks on the negative effects of the rate cap http://www.businessdaily...035034-wlaj53/index.html