Wazua
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Law Capping interest rates
Rank: Elder Joined: 3/19/2010 Posts: 3,504 Location: Uganda
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Some effects of rate capping mobile.nation.co.ke/counties/nairobi/nairobi-unable-to-account-for-more-than-twenty-billion/3112260-3474882-5r5h8/index.html Guys are running after the squirrel while the elephant is in the house.. Looting senselessly https://www.standardmedi...om-cdf-kitty-in-one-yearpunda amecheka
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Rank: Elder Joined: 6/23/2009 Posts: 13,554 Location: nairobi
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[quote=newfarer]Some effects of rate capping mobile.nation.co.ke/counties/nairobi/nairobi-unable-to-account-for-more-than-twenty-billion/3112260-3474882-5r5h8/index.html Guys are running after the squirrel while the elephant is in the house.. Looting senselessly https://www.standardmedi...m-cdf-kitty-in-one-year[/quote] The rate cap was the right medicine but for the wrong disease http://www.businessdaily...474486-fq5rp4/index.html
HF 90,000 ABP 3.83; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: Member Joined: 5/21/2014 Posts: 184
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Kausha wrote:tom_boy wrote:Obi 1 Kanobi wrote:Yowel wrote:tom_boy wrote:Yowel wrote:tom_boy wrote:Let me be counted among the pro rate cap hoi poloi. I still dont understand why rate cap is bad for business. The sooner banks get over their pity party , double down and get to work lending to those who deserve loans, the better it will be for all of us. No need having registered shylocks masquerading as banks. By June 2017, they will have seen the light and done away with their credit crunch games.
By the way, can someone explain to me slowly what interest rates have to do with weakening kenya shs against the dollar. What is the relationship. First, refer to post #1522. Then ask questions. @Yowel, kama huna jibu, dont expose your ignorance. Post #1522 does not answer my question. Let me give you another chance to answer the question. Go ahead, give it a shot, sio mtihani . . . nkt. @tom_boy, kuwa mpole bwana. Currency exchange rates are determined by a number of factors e.g. interest rates, current account on balance of payments, economic growth, relative inflation rate etc. Now looking at interest rates in isolation: if Kenyan interest rates rise, it shall become more attractive to save in Kes, thus a demand for the currency thus appreciation, but the KES is not a major currency and no one will dare do what ive explained considering the fragile nature of third world countries where savings could be wiped out in a flash. Now, answering your question based on the current situation: most emerging economies have borrowed in USD, i.e. both governments (read Eurobond in kenya, Nigeria, Ghana etc) and even the private sector. When the US raise their interest rates, investments and funds shall start trickling back at the expense of other countries, demand for the dollar shall rise and the USD shall appreciate and other currencies shall depreciate (KES etc). These shall be the effects: 1) investment shall be withdrawn by foreigners, a capital outflow which shall affect key investments both in the private sector and public sector. 2) repayment of debt shall be more expensive since the govt source of revenue is kes and repayment of debt is in usd, thus it shall take more kes to buy the same dollar. Thus the govt shall borrow more, still in Kes to meet the obligation, this shall cause interest rates to rise and the debt burden to increase even further. (For Kenya this is dangerous considering our budget deficit stands at 9.3% of GDP). For the government to protect the KES it needs to by either buy more dollars or raising interest rates higher crowding out funding for the private sector. Your answer is irrelevant to this topic. Let me state that I am a proud pro-capping and even started this thread (in what now seems like a long time ago). The capping as has been done only restricts the interest rate spread and affects banks only, it should have no impact on the rest of the economy any different from how a free interest rate regime would have. The base interest rate can still swing between 0-100% depending on the macros, our currency is also still free floating. Basically what banks have been told is that you can only make money within this limits from interest income, nothing else. All this scaremongering by akina Maichblack is a result of only study economic theory and never bothering to apply the same in real life where the variables are as numerous as one can imagine. PS, a major bank last week came to our office to sell us loans including credit cards and mortgages so I don't get this credit crunch bit that everyone is harping about. Wacha sisi tu ishi na caps. The doomsayers can continue waiting for doomsday. Na hata even if the caps were to be reversed, it could only return us to where we were before the capping. The imminent economic collapse or slow down is a result of poor governance, corruption and overspending and has nothing to do with rate caps. It started way before 2016 and could have happened even without the rate caps @yowel, thanks for trying but as pointed out above, your answer does nothing to explain how rate caps are bad with a strong Usd. If anything, rate caps ensure that the Govt has better control of tbill rates as they are literally flooded by banks trying to buy paper. I keep saying its a dance between govt and the banks. Banks must choose wisely. Flood the govt with your money and rates will go lower thus less profit for them. Alternatively, get to work, do your research, make real effort in establishing relationships with loan worthy clients and you will have a good loan book not dependent on govt paper to make a profit. I believe those businesses exist and majority of them have never bothered to take a loan because of the usurious rates,but now, may just be willing to do so. All these sounds nice but the theory breaks down when ypu realize the government is actually not flooded with money but is instead collecting all and showing insatiable appetite for more funds. GK is borrowing at 14.5% from twelve years do you really expect a bank to take consumer or SME credit risk? Certainly not. @Kausha .... you want us to compare a 12-year bond and a 48 - 72 months personal loan as a like for like by pasting a rate  ? There are too many opportunities all around. Open your eyes and maybe you'll spot one
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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Ummmmm CBK paid 14% on the recent bond...5.96 years to maturity...why bother lending to SME, taking general provision, taking risks etc. Business opportunities are like buses,there's always another one coming
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Rank: Elder Joined: 9/29/2006 Posts: 2,570
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KulaRaha wrote:Ummmmm CBK paid 14% on the recent bond...5.96 years to maturity...why bother lending to SME, taking general provision, taking risks etc. With 5M it means almost 300k every six months or almost 150k every three months. It's around 50,000/= per month! The opposite of courage is not cowardice, it's conformity.
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Rank: Member Joined: 5/21/2014 Posts: 184
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I think that if one's business is profitable and well managed, it's the relationship with the bank or financiers that will matter most. Part of the relationship entails demonstrating the 'profitable and well managed' bit. The rate cap has resulted in exponentially more people (and businesses) becoming more willling to take loans. It's up to banks to finetune their mechanism for picking out the good business from the increased number of prospects. If there is money to give more personal loans, why would there be less money to give loans to SMEs? Therein lies the puzzle. I think, in my humble opinion, that many businesses don't like to plan before approaching financial institutions for loans. There are too many opportunities all around. Open your eyes and maybe you'll spot one
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Rank: Veteran Joined: 11/13/2015 Posts: 1,596
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actuarywahisa wrote:I think that if one's business is profitable and well managed, it's the relationship with the bank or financiers that will matter most. Part of the relationship entails demonstrating the 'profitable and well managed' bit.
The rate cap has resulted in exponentially more people (and businesses) becoming more willling to take loans. It's up to banks to finetune their mechanism for picking out the good business from the increased number of prospects.
If there is money to give more personal loans, why would there be less money to give loans to SMEs? Therein lies the puzzle.
I think, in my humble opinion, that many businesses don't like to plan before approaching financial institutions for loans. oh my  .Have you ever tried to run a business in Nairobi. You will quickly realize all this fancy talk will not survive the first encounter with a client let alone a financier.
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Rank: Member Joined: 5/21/2014 Posts: 184
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KulaRaha wrote:Ummmmm CBK paid 14% on the recent bond...5.96 years to maturity...why bother lending to SME, taking general provision, taking risks etc. CBK 15 yr and 20 yr bond resultsThere are too many opportunities all around. Open your eyes and maybe you'll spot one
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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actuarywahisa wrote:KulaRaha wrote:Ummmmm CBK paid 14% on the recent bond...5.96 years to maturity...why bother lending to SME, taking general provision, taking risks etc. CBK 15 yr and 20 yr bond results And cut-off? It was 13.95% LOOOOOOOOOL Business opportunities are like buses,there's always another one coming
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Rank: New-farer Joined: 8/12/2016 Posts: 22
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To be Honest business is tough. I had a loan kwa one of this small banks and they were still charging me 22%. I cleared the loan in the hope that i would get a topup but wapi...For other banks to give you a loan it has to be secured. if its a car its around 70% of the forced value.
The last quarter of this year has been thick. sijui January vile watu wa SMEs are going to survive. Employees wanagojea bonuses but pesa hakuna...
Things are thick.
Then the government is on a looting spree and we are still being indifferent just cause we are sitting on our comfort zones. 2017 is going to be so so so bad....
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Rank: Member Joined: 5/21/2014 Posts: 184
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KulaRaha wrote:actuarywahisa wrote:KulaRaha wrote:Ummmmm CBK paid 14% on the recent bond...5.96 years to maturity...why bother lending to SME, taking general provision, taking risks etc. CBK 15 yr and 20 yr bond results And cut-off? It was 13.95% LOOOOOOOOOL Are you looking at the cashflows for the bank from investing in a bond vs giving a loan? LOOOOOL indeed. Rate capping will reduce the careless throwing around of money at poor quality prospects whether it's personal or business lending which is something the financiers ought to have been doing from the start. If disciplined lending is what is called credit-crunch then let the 'credit-crunch' continue. There are too many opportunities all around. Open your eyes and maybe you'll spot one
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Rank: Member Joined: 1/27/2012 Posts: 851 Location: Nairobi
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actuarywahisa wrote:I think that if one's business is profitable and well managed, it's the relationship with the bank or financiers that will matter most. Part of the relationship entails demonstrating the 'profitable and well managed' bit.
The rate cap has resulted in exponentially more people (and businesses) becoming more willling to take loans. It's up to banks to finetune their mechanism for picking out the good business from the increased number of prospects.
If there is money to give more personal loans, why would there be less money to give loans to SMEs? Therein lies the puzzle.
I think, in my humble opinion, that many businesses don't like to plan before approaching financial institutions for loans. @actuarywahisa. Stop thinking. Talk to those who know from experience. The banks are reluctant to know your business. Businesses world over loans to SMEs are riskier than personal loans. Before banks were dishing out loans, now they are not. FACT!
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Rank: Veteran Joined: 8/28/2015 Posts: 1,247
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bennry wrote:To be Honest business is tough. I had a loan kwa one of this small banks and they were still charging me 22%. I cleared the loan in the hope that i would get a topup but wapi...For other banks to give you a loan it has to be secured. if its a car its around 70% of the forced value.
The last quarter of this year has been thick. sijui January vile watu wa SMEs are going to survive. Employees wanagojea bonuses but pesa hakuna...
Things are thick.
Then the government is on a looting spree and we are still being indifferent just cause we are sitting on our comfort zones. 2017 is going to be so so so bad.... Enyewe, things are thick but the thicker the thing the sweater the pie,,,, And so I got just three quiz begging for answers or critique. 1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you? 2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way) 3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag? ,Behold, a sower went forth to sow;....
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above Business opportunities are like buses,there's always another one coming
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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We have been saying this all along but the M-Shwari Crew will never understand! Isorait!! Quote:Frankly, it was utopian for Kenyans to assume that interest rate capping would unleash lending and attendant business and economic growth. Liquidity seems to have tightened rather than loosened, as some analysts myself included, had warned.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 6/23/2009 Posts: 13,554 Location: nairobi
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KulaRaha wrote:muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above On 2.0 consider the risk of default.. Meanwhile at the end of the day, banks will still exist, but not the niche ones.. Larger banks who operate a financial supermarket model, shall thrive
HF 90,000 ABP 3.83; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: Veteran Joined: 8/28/2015 Posts: 1,247
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KulaRaha wrote:muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above  Hapa umeniweza. So banks are more willing to lend to government at less than 14% than they would lend at 26% plus. And at 26% plus they, lend more to SME and wanjiku based on higher risk of default and not better returns? If its definite that a creditor will default, what interest rate would a banker quote? 100%, 100000000% plus collateralization? Interest rate is the cost you pay for acquiring capital. In a free market its wholly determined by demand and supply forces and marksup the return on banks investment. Simply low profits are most likely associated with low profitability and low default risk. ,Behold, a sower went forth to sow;....
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Rank: Elder Joined: 10/18/2008 Posts: 3,434 Location: Kerugoya
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I believe it is time we derived a clear meaning of what constitutes a small and medium enterprise, SMEs. This way, we can be able to think through our posts and stop making what I discern to be failure to differentiate their loans with personal loans. Take, for example, Ms Anzetse Were, a Development Economist, whose article in the Business Daily dated December 4 2016 under the headline: SMEs Grapple With Credit Squeeze In Era Of Rate Cap, clearly fails to distinguish between the two. Extract:“It is not all bad news, however. Saccos (Savings and Credit Cooperative Societies) have become a more attractive financing option particularly given that some already provide credit to members well below current bank rates. This may lead to expansion of this sector thereby broadening financing options for Kenyans. Further, increased difficulty in assessing loans will make it harder for Kenyans to take on credit for consumptive rather than investment purposes. Applications will have to be thought through more rigorously than perhaps previously. This is good news.” Link.
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Rank: Veteran Joined: 8/28/2015 Posts: 1,247
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defination of SMEsaemathenge wrote:I believe it is time we derived a clear meaning of what constitutes a small and medium enterprise, SMEs. This way, we can be able to think through our posts and stop making what I discern to be failure to differentiate their loans with personal loans. Take, for example, Ms Anzetse Were, a Development Economist, whose article in the Business Daily dated December 4 2016 under the headline: SMEs Grapple With Credit Squeeze In Era Of Rate Cap, clearly fails to distinguish between the two. Extract:“It is not all bad news, however. Saccos (Savings and Credit Cooperative Societies) have become a more attractive financing option particularly given that some already provide credit to members well below current bank rates. This may lead to expansion of this sector thereby broadening financing options for Kenyans. Further, increased difficulty in assessing loans will make it harder for Kenyans to take on credit for consumptive rather than investment purposes. Applications will have to be thought through more rigorously than perhaps previously. This is good news.” Link. ,Behold, a sower went forth to sow;....
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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muandiwambeu wrote:KulaRaha wrote:muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above Hapa umeniweza. So banks are more willing to lend to government at less than 14% than they would lend at 26% plus. And at 26% plus they, lend more to SME and wanjiku based on higher risk of default and not better returns? If its definite that a creditor will default, what interest rate would a banker quote? 100%, 100000000% plus collateralization? Interest rate is the cost you pay for acquiring capital. In a free market its wholly determined by demand and supply forces and marksup the return on banks investment. Simply low profits are most likely associated with low profitability and low default risk. Are you being serious right now!!?? Risk MUST be factored in in any loan even in Utopia let alone in "free markets"!!! Walk into any bank in Manhattan and try to get a loan at the same rate as the fortune 500 companies or any blue chip company for that matter. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Law Capping interest rates
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