The new legislation was in response to the public view that lending rates in Kenya were too high, and that banks were engaging in predatory lending behavior. The interest rate caps were therefore intended to alleviate the repayment burden on borrowers and improve financial inclusion as more individuals and firms would be able to borrow at the lower repayment rates. So, what happened?
Our analysis finds that that all banks, tier 1, tier 2 and tier 3, showed a significant shift in lending towards corporate clients at the expense of lending in other sectors such as SMEs, consumer loans, and new borrowers.
This is particularly notable since corporate clients already dominated the loan books of the banking sector, and the caps seem to have worsened that imbalance. In the case of SMEs, which make up over 98 per cent of all businesses and provide 30 per cent of all new jobs in the country, the economic effects of a credit crunch are dangerous.
Full article: Business Daily