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Law Capping interest rates
Rank: Elder Joined: 6/23/2009 Posts: 14,226 Location: nairobi
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muandiwambeu wrote:Kusadikika wrote:Setting interest rates and assessing risk is very hard without data. In the a place like the US there is plenty of data to work with because of the reporting system using the social Security number that tracks everything.
You provide the number every time you rent a house, get utility connection like power and water, buy insurance, buy a car, get a credit card, borrow a loan etc.
There is therefore plenty of information to work with even before you have borrowed any money because if you have failed to pay your electricity or water bill or even rent it shows up.
This system works to provide a lot of information for businesses etc but on the flip side you feel like you are constantly being monitored. Even information like how frequently you use the ATM and what amounts you withdraw is known and probably being used to give a profile of who you are. With reference to the on going debt restructuring programme for kq, access/ explore ways through which banks have failed in their lending regimes and thus provide a basis to argue in favour of newly implemented capping of interest rates. Indeed there was failure by a number of banks.. Especially I&M which failed to price in the risk
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Rank: Member Joined: 1/27/2012 Posts: 851 Location: Nairobi
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Obi 1 Kanobi wrote:mkeiy wrote:Obi 1 Kanobi wrote:mkeiy wrote:Obi 1 Kanobi wrote:
I stated that Kenya's weakness is a lack of or poor managerial skills which is one of the 4 factors of production (entrepreneurship).
If a camel owner in Moyale wants a loan, he can be appraised by banks in Moyale based on several metrics including his camel herd size which can be used as security and how to recover the security, his account balance movement, why he wants the 500K loan yet he just made 1 million from camel sales, what he wants the money for, whether he has applied for a loan previously and did he pay etc. there are many metrices one can consider, its just common sense really.
The country risks are not the same and thats basic risk analysis, other than that the business risks as much as they have similarities are pretty much the same. The 50 bob bribe is paid by every matatu in the market in kenya so I am sure matatu operators already factor it in their pricing and cashflows.
@Obi. If you know country risks are not the same, why are you comparing Kenya to UK? In Kenya,next week there won't be biz. Does such risk exist in the UK? How many businesses will suffer? How do banks see it? I forgot to mention, the Moyale guy sold his camels & now doing biz in Nairobi. With about 1 million, done biz for just over 6 months. Now needs 500k loan to exploit an opportunity interconnected with his small biz. He's never taken a loan before,okoa jahazi, bank or otherwise. What credit history will the banks use in order for him to qualify as potentially, a good borrower? I think this is where the problem lies, the person in your example has no credit history and as such should be treated as a person with no credit history and get little or no loans just yet. If banks in Kenya approached him as analytically as banks in other places in the world do their customers, then the person in your example would not qualify for the 500K loan based on your limited facts.
Why don't you give a more practical example, say a business in Nairobi, you are complicating a simple analysis by talking about a person in moyale selling camels yet we all know muslims don't borrow money, moyale is 1,000Kms from Nairobi etc and your example is not representative of an average kenyan borrower. @Obi. I stick to my example, you give yours. For a start, not all people from Moyale are Muslims. Know your stuff. Secondly, the example I am sticking to, is a true story,here in Nairobi. I wanted to use the extreme. Thirdly, the guy got a loan of the 500k 6 years ago after coming to Nairobi & doing business for about 8 months before applying for that loan. His biz has grown & he's stable now. Doesn't need loans. What I am demonstrating is, in Kenya, the credit history you are claiming should be used, doesn't exist in the first place,for most of the business people who need loans. Whilst in the First World, it does. What has been happening in Kenya(since you guys seem to have been away) until the rates cap was, after banking with a certain bank for over six months, they would look at your statement, assess your business by visiting and if they are satisfied, they lend you.. ..I know tens of people who've grown financially that way,running different types of businesses. Hardware, Matata, mtumba etc. Since rates cap, banks chose to keep their money stifling economic growth. @Obi. Be practical. Mama mboga, hardware guy, mtumba dealer, Matata guy, all starting up, one year in business. What credit history do you suggest the banks should use? How is this credit history earned? By your reasoning, no credit history, no loans. Forever. Aah, now I see the problem. Maybe I need to define what I mean by credit history. Take credit history to include financial history of a borrower. Every first time borrower will not have a credit history as they have never borrowed, that does not mean they will not qualify for a loan, however, they should qualify for a lower amount than a seasoned borrower who has paid 3 previous loans successfully and is now applying for his fourth loan (assuming same cashflows). The same would apply for two people saving different proportions of their incomes. I hope that now settles this. @Obi. Yes it does. Also appreciate that, with rates cap, even the chance of getting that small loan to start building credit history, to over 90% of the new applicants, doesn't exist and that's what us of the 'anti-interest cap brigade', have issue with. Denial of a beginning chance.
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Rank: Member Joined: 1/27/2012 Posts: 851 Location: Nairobi
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tom_boy wrote:Ngalaka wrote:tom_boy wrote:
Using this Moyale guy example, a sensible banking system would award him a loan say at 20%. If he pays without issues, his next loan should be cheaper etc etc until he gets to the best available rate for his circumstances. In Kenya, banks treat everyone the same. Thats why rate cap had to come in and its good.
Salaala, Isn't that contradictory of your long running position. With the rate caps, Banks can only lend such a person at a maximum of 14% or decline altogether. In most cases they are opting on NOT lending to such a person at all!  kweli kuelewa kizungu ni ngumu @tom-boy. Acha zako. It's not like all borrowers were getting loans at the same rate. They've always been using different rates for different people. Now they are forced to use 14% max, regardless of the borrower's credit risk. The result, no loans for new guys & the risky borrowers.
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Rank: Member Joined: 1/27/2012 Posts: 851 Location: Nairobi
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Kusadikika wrote:Setting interest rates and assessing risk is very hard without data. In the a place like the US there is plenty of data to work with because of the reporting system using the social Security number that tracks everything.
You provide the number every time you rent a house, get utility connection like power and water, buy insurance, buy a car, get a credit card, borrow a loan etc.
There is therefore plenty of information to work with even before you have borrowed any money because if you have failed to pay your electricity or water bill or even rent it shows up.
This system works to provide a lot of information for businesses etc but on the flip side you feel like you are constantly being monitored. Even information like how frequently you use the ATM and what amounts you withdraw is known and probably being used to give a profile of who you are. @Kusadikika. 
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Rank: Member Joined: 1/27/2012 Posts: 851 Location: Nairobi
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quicksand wrote:Ngalaka wrote:Kusadikika wrote:Setting interest rates and assessing risk is very hard without data. In the a place like the US there is plenty of data to work with because of the reporting system using the social Security number that tracks everything.
You provide the number every time you rent a house, get utility connection like power and water, buy insurance, buy a car, get a credit card, borrow a loan etc.
There is therefore plenty of information to work with even before you have borrowed any money because if you have failed to pay your electricity or water bill or even rent it shows up.
This system works to provide a lot of information for businesses etc but on the flip side you feel like you are constantly being monitored. Even information like how frequently you use the ATM and what amounts you withdraw is known and probably being used to give a profile of who you are. Of course we are dealing with a bunch of theorists. This is Kenya - for crying out loud. Got to appreciate where we are at present - realism. Once upon a time,..the likes of Barclays and Stanchart required a minimum of 20,000 shillings to keep an account open. This was the late 90's, early 2000s. If you couldn't afford to park an expensive 20k you were not worth their time. Large swathes of Kenya were not worth their time as they started closing branches,..even in big towns like Nyahururu. The bitch slap that came still stings even today... There is an eerily similar parallel here. There is information to work with to assess risk even at present, starting by a bank's own books, its own lending history, its customers' borrowing history. We have a credit reference bureau, don't we? Who is going to be the first bank executive to stop moaning, get off his fat ass and exploit the new opportunities that this rate regime has brought? Who will deliver the bitch slap v2.0? Lets wait and see. @quicksand. Using few words,if you may, highlight these NEW opportunities that rate cap has brought, which NEVER existed before?
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Rank: Veteran Joined: 10/29/2008 Posts: 1,566
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quicksand wrote:Ngalaka wrote:Kusadikika wrote:Setting interest rates and assessing risk is very hard without data. In the a place like the US there is plenty of data to work with because of the reporting system using the social Security number that tracks everything.
You provide the number every time you rent a house, get utility connection like power and water, buy insurance, buy a car, get a credit card, borrow a loan etc.
There is therefore plenty of information to work with even before you have borrowed any money because if you have failed to pay your electricity or water bill or even rent it shows up.
This system works to provide a lot of information for businesses etc but on the flip side you feel like you are constantly being monitored. Even information like how frequently you use the ATM and what amounts you withdraw is known and probably being used to give a profile of who you are. Of course we are dealing with a bunch of theorists. This is Kenya - for crying out loud. Got to appreciate where we are at present - realism. Once upon a time,..the likes of Barclays and Stanchart required a minimum of 20,000 shillings to keep an account open. This was the late 90's, early 2000s. If you couldn't afford to park an expensive 20k you were not worth their time. Large swathes of Kenya were not worth their time as they started closing branches,..even in big towns like Nyahururu. The bitch slap that came still stings even today... There is an eerily similar parallel here. There is information to work with to assess risk even at present, starting by a bank's own books, its own lending history, its customers' borrowing history. We have a credit reference bureau, don't we? Who is going to be the first bank executive to stop moaning, get off his fat ass and exploit the new opportunities that this rate regime has brought? Who will deliver the bitch slap v2.0? Lets wait and see. While I agree with some of the aspects you raise. I might as well remind you that the embracing of the so called small time banker was not brought about by bludgeoning action from the authorities. The free market through its dynamics moved to widen the net. Isuni yilu yi maa me muyo - ni Mbisuu
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Rank: Veteran Joined: 7/5/2010 Posts: 2,061 Location: Nairobi
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mkeiy wrote:quicksand wrote:Ngalaka wrote:Kusadikika wrote:Setting interest rates and assessing risk is very hard without data. In the a place like the US there is plenty of data to work with because of the reporting system using the social Security number that tracks everything.
You provide the number every time you rent a house, get utility connection like power and water, buy insurance, buy a car, get a credit card, borrow a loan etc.
There is therefore plenty of information to work with even before you have borrowed any money because if you have failed to pay your electricity or water bill or even rent it shows up.
This system works to provide a lot of information for businesses etc but on the flip side you feel like you are constantly being monitored. Even information like how frequently you use the ATM and what amounts you withdraw is known and probably being used to give a profile of who you are. Of course we are dealing with a bunch of theorists. This is Kenya - for crying out loud. Got to appreciate where we are at present - realism. Once upon a time,..the likes of Barclays and Stanchart required a minimum of 20,000 shillings to keep an account open. This was the late 90's, early 2000s. If you couldn't afford to park an expensive 20k you were not worth their time. Large swathes of Kenya were not worth their time as they started closing branches,..even in big towns like Nyahururu. The bitch slap that came still stings even today... There is an eerily similar parallel here. There is information to work with to assess risk even at present, starting by a bank's own books, its own lending history, its customers' borrowing history. We have a credit reference bureau, don't we? Who is going to be the first bank executive to stop moaning, get off his fat ass and exploit the new opportunities that this rate regime has brought? Who will deliver the bitch slap v2.0? Lets wait and see. @quicksand. Using few words,if you may, highlight these NEW opportunities that rate cap has brought, which NEVER existed before? I already have, in the text I posted, but happy to repeat it. The premise is that there is no credit history information. That is not true. A bank surely has credit information of its past borrowers? Start with those. Introduce new procedures, like for instance quick audits of business operations to ascertain the health of the borrowers. Have salaries employees process pay through your accounts..etc etc Yes, it will introduce overheads BUT it is doing something. Banks could share info. Other companies do, for instance telcos have cross billing agreements, network resource sharing agreements, newspapers have printing agreements....it reduces risk for everyone....the rate regime is supposed to spur innovation and cooperation of this nature, if only banks weren't such prima donnas. Govt borrowing is perhaps to blame. What is the opportunity? Capitalizing on the fear of other banks. A sacco I know is buying and consolidating banks loans for it members. That is a positive sign. That is confidence in its members ability to pay. Saccos even loan out money merely on a written guarantee from other members and members issue guarantees many times over their holdings - no security/asset holds - and yet you don't get hissy fits from Saccos. There are no meltdowns in Saccos as a sector. I hope it sticks, I really do.
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Rank: Veteran Joined: 8/28/2015 Posts: 1,247
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obiero wrote:muandiwambeu wrote:Kusadikika wrote:Setting interest rates and assessing risk is very hard without data. In the a place like the US there is plenty of data to work with because of the reporting system using the social Security number that tracks everything.
You provide the number every time you rent a house, get utility connection like power and water, buy insurance, buy a car, get a credit card, borrow a loan etc.
There is therefore plenty of information to work with even before you have borrowed any money because if you have failed to pay your electricity or water bill or even rent it shows up.
This system works to provide a lot of information for businesses etc but on the flip side you feel like you are constantly being monitored. Even information like how frequently you use the ATM and what amounts you withdraw is known and probably being used to give a profile of who you are. With reference to the on going debt restructuring programme for kq, access/ explore ways through which banks have failed in their lending regimes and thus provide a basis to argue in favour of newly implemented capping of interest rates. Indeed there was failure by a number of banks.. Especially I&M which failed to price in the risk All vital signs were available to the banks actually to deny kq any credit if a given criteria was not complied with. P&l statements, balance sheet cash flow statements liquidity position, increased business risk, high fuel regimes entrenched intrinsically into the DNA of the firm by poorly priced fuel hedges and shady managerial practices could not have any better risk pricing, other than default clause and thus a charge of hardcore disposable assets. Thumbs up for jp morgan strategy. Now, look who is in the real wilderness with nothing to hold on too, were the firm to be wound up? Local banks who lend money to systematically sick firm at crazy low rates. Did any one credit officer or ceo go through kqs books and review available data to price in the risk? By any demonstrable methods, banks have clearly stated to Kenyans they price no risk with their crazy 25+% interests rates when already such facilities are secured to the very title that makes your family's home. If not so let someone explain how every bank let to a junk firm at ridiculously low prices without guarantee or security charge. Banks have just been rocking Kenyans freely. The bracket should actually be lowered for secured loans to +2% and never to soar beyond 14% any day. ,Behold, a sower went forth to sow;....
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Rank: Member Joined: 2/20/2007 Posts: 767
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muandiwambeu wrote:obiero wrote:muandiwambeu wrote:Kusadikika wrote:Setting interest rates and assessing risk is very hard without data. In the a place like the US there is plenty of data to work with because of the reporting system using the social Security number that tracks everything.
You provide the number every time you rent a house, get utility connection like power and water, buy insurance, buy a car, get a credit card, borrow a loan etc.
There is therefore plenty of information to work with even before you have borrowed any money because if you have failed to pay your electricity or water bill or even rent it shows up.
This system works to provide a lot of information for businesses etc but on the flip side you feel like you are constantly being monitored. Even information like how frequently you use the ATM and what amounts you withdraw is known and probably being used to give a profile of who you are. With reference to the on going debt restructuring programme for kq, access/ explore ways through which banks have failed in their lending regimes and thus provide a basis to argue in favour of newly implemented capping of interest rates. Indeed there was failure by a number of banks.. Especially I&M which failed to price in the risk All vital signs were available to the banks actually to deny kq any credit if a given criteria was not complied with. P&l statements, balance sheet cash flow statements liquidity position, increased business risk, high fuel regimes entrenched intrinsically into the DNA of the firm by poorly priced fuel hedges and shady managerial practices could not have any better risk pricing, other than default clause and thus a charge of hardcore disposable assets. Thumbs up for jp morgan strategy. Now, look who is in the real wilderness with nothing to hold on too, were the firm to be wound up? Local banks who lend money to systematically sick firm at crazy low rates. Did any one credit officer or ceo go through kqs books and review available data to price in the risk? By any demonstrable methods, banks have clearly stated to Kenyans they price no risk with their crazy 25+% interests rates when already such facilities are secured to the very title that makes your family's home. If not so let someone explain how every bank let to a junk firm at ridiculously low prices without guarantee or security charge. Banks have just been rocking Kenyans freely. The bracket should actually be lowered for secured loans to +2% and never to soar beyond 14% any day. Well said. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 4/14/2010 Posts: 806 Location: Nairobi
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So much bile against the banks...wah!
But they are in the business of making money...in a willing seller willing buyer market.
Interest rate caps are forcing the seller to sell at a price the seller is not willing to sell...unlike perishable goods...the banks goods do not go stale...but get 'sold' or invested in other instruments (T/bonds). If the gova wanted to force the seller to sell...they should lower the rates available on government securities...as long as these remain attractive...only the creme de la creme buyers will get to access credit from the banks.
The game being played currently is a stalemate...the banks VS gova...both are watching who will blink first...
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