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Time for SACCOs to offer businesses credit lifeline

Time for SACCOs to offer businesses credit lifeline

Since the introduction of interest capping law last year, banks have been shy loaning money to individuals and small and medium enterprises (SMEs). These categories are considered ‘high-risk’ in banking and thus attracted higher interest, in some cases upwards of 20 per cent.
Capping the rate at just about 14 per cent, that’s four basis points above the benchmark Central Bank Rate, shaved off nearly 50 per cent of the interest banks would earn from credit. Charging ‘friendly’ rates on ‘high risk’ borrowers, banks believe, would overexpose them to higher defaults.
The economy is suffering now, with the SME sector starved of the needed credit to stimulate growth. This is the largest segment of the economy that employees more than 50 per cent of the population. The government has been urging youth to shift their focus from job seekers to job creators.
This is a very candid acceptance that times are changing from white to blue-collar jobs for economic development. For this to happen, however, credit should be available at affordable rates. Most SMEs owners launch their operations with funds from family, savings, friends and well-wishers.
At this stage, such funds come in handy in rolling out a viable business idea but need bigger amounts, often in form of credit, to take the business to the next operational level. What happens when loans are not available is that such businesses either face their immature demise or remain small for years. Brave entrepreneurs with high appetite for risk quickly cobble up a business plan which they present to financial institutions in the hope of acquiring business credit.
Majority go down with their new business outfits. But these are very tricky days for even the bravest of small entrepreneurs as banks are not even listening to them. This has left a billion-dollar-business begging for attention.
Add individual borrowers who also have been locked out by many banks and you stare at a very lucrative market. For now, SACCOs are the last call for many. They should now take advantage and court this market.
Since SACCOs’ interest rates have been for the most part within the legal provisions they can lend to this market without having to bend backwards. Strategic managers and planners in commercial banks have shifted their profit making ventures to government paper and mortgages.
Low interest rates means more people and companies can borrow. What’s needed is for SACCOs to follow the right financing procedures and they won’t get into trouble with defaults. This was the intended spirit of the new law. Not for banks to hibernate. All said, it’s SACCOs time to rise to the occasion.



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