Claims by Kenyan commercial banks that their businesses have suffered from the capping of interest rates have been contradicted by a report showing the savings and credit societies increasingly becoming the new lenders of choice for borrowers.
The Financial Sector Stability Report covering the first year since the capping, shows that credit growth slowed down because large borrowers had weak balance sheets that could not accommodate additional debt, a scenario that would have persisted even if the interest rates caps were not present.
“Lower household demand for credit and weak corporate sector balance sheets as well as cash-flow problems facing many firms impacted credit uptake,” says the report which was released a week ago.
It adds that profitability and liquidity problems were reported by scores of companies even outside the finance sector as evident in the record number of profit warnings posted by firms listed on the Nairobi Securities Exchange; job losses across sectors; and increased litigation related to failure to meet contractual obligations.
Staff retrenchment
Banks have blamed interest rate caps for their inability to lend more and make more money and have won the support of the Central Bank of Kenya and the International Monetary Fund in calling for the interest rate ceilings introduced in September last year to be lifted.
The report points out that this uncertainty surrounding the interest rate-capping law may undermine the uptake of credit.
The Central Bank is one of the contributors to the report, which collates the perspectives of regulators who oversee banking, insurance, pensions and savings and credit societies.
The Kenyan government had banked on lower interest rates becoming a catalyst to revitalize the economy. This did not happen, indicating lack of investment opportunities, which could be due to low spending ability with workers facing job uncertainty or outright dismissal as companies retrench staff.

Source: http://www.theeastafrican.co.ke/business/Why-more-people-are-shunning-banks-and-going-for-Sacco-loans-/2560-4222950-xqpeklz/index.html