What we are experiencing now in Kenya is called a deleveraging, and a major one at that, more on that later. However, a small part of it lies here, the central bank prints money and charges people to use it. If you have any better use for Kenyan money than what banks are doing, if you can go to CBK take 1,000 million shillings (1 billion) and pay it back in one year with 140 million, whatever you make on top is yours, you are free to do so. The only condition is you deposit something so you don't con them and run away with their money. So what Kenya is experiencing at 20% is what the guys who agree to put their money together, can do, it is like asking a hawker to reduce the price of the mutumba na anakwambia market conditions hio bei ndio mwisho kabisa! And banks are even collapsing with this interest rate! Indeed other hawkers take 5% out there. And i know if CBK gave you that cash, you would go into the same businesses as the banks, land, tenders, e.t.c.

So why the high rate? For interest is a cost of using money, it depends on transactions carried out with this money, two things, spending, and the credit given and money printed and what it is spent on. What is Kenyan money mainly spent on. Two "types" of goods are in major demand,

1. Physical Goods, in Kenya, the mostly land, houses, mitumba cars, buses, matatus, ugali, chapo, githeri, t.v. radio. mobile, mitumba, medicine, middle class add meat chicken and sausages, and mafuta, there is little beyond that, we do import some aeroplanes and other machines, but such are all imports and a burden.
2. Non physical goods (know as services). Education, airtime, consultation, charge for use of money itself in transactions, mpesa e.t.c.

When best of KENYAN banks borrow money from CBK just as your sacco can, they THINK HARD what to do with the money so they can pay the 140 million on top, they look between mitumba, houses, githeri, typically they all end up in real estate, mitumba cars, and the charges for moving your money from the hands of one good holder, to the other, in which Mpesa is now leading. Typically, our financial sector charges and survives mostly on proceeds of land and real estate speculation, which are their number one activity, saccos and chamas do the same, and our interest rate therefore largely reflects the cost of acquiring a plot and real estate development.

When the central bank does it's natural job and prints cash, all the money goes back to land, githeri, mitumba e.tc and this causes inflation, because bei ya mafuta imepanda, the next time the bank goes to look for a plot, it will cost more. This will continue on and on as long as there is no one who can do anything better with central banks money. The people who handle the cash have to pay higher bills and demand higher salaries, and so CBK carefully or carelessly prints more cash, to meet the cost needed to make it's own money work, and the interest rates rise, and the price of plots rise, to cater for the same, a viscous cycle per excellence!

On the other hand when the money is used to create more (new goods), new enterprises, e.t.c, like mpesa shops and mpesa, when the central bank prints cash, the inflation does not happen as bad, for inflation is "too much money chasing too few good"...so what we are experiencing is an opportunity for someone, only no one knows how to innovate like mpesa, no new goods. It is a case of people having no idea how to use money they are given, maybe 'some sacco' will undercut this interest rate, watu watapona pole pole, watu watajua kutumia pesa, no need to regulate.

Bank will bring back the colonial banking chrages like ledger fees, ATM fee, annual fee etc.