Small traders say loan interest rates remain high despite private sector credit growth

The disconnect is particularly pronounced among small and medium-sized enterprises, which claim they are yet to see a meaningful increase in access to credit despite the adoption of risk-based credit pricing.

The latest credit data from the Central Bank shows that credit to the private sector grew by 10.2 percent. According to the Kenya Bankers Association, the growth is partly attributable to the risk-based pricing model.

But the question remains: Has the growth translated into easier or more affordable financing for businesses and customers?

According to the National Taxpayers Association, micro, small and medium enterprises remain Kenya's most credit-constrained segment, partly due to the nature of their typically short-term borrowing.

The association argues that although banks have publicly doubled their collective MSME lending commitment to more than Ksh.350 billion, the amount remains modest when compared with the Ksh. 2.54 trillion that banks hold in government securities and public debt.

“The scale of this commitment should, however, be read against the Ksh. 2.54 trillion banks already hold in government securities and public debt. MSME lending remains a small fraction of aggregate bank balance-sheet allocation,” the association stated.

The sentiment is echoed by MSME players, who claim they are yet to feel the impact of the reported credit growth.

“When money enters people's pockets, you can easily see the impact. You will see people increasing their stock and you will see growth in the market, and that is not what is happening,” Kagoine Machari, a small trader, stated.

Despite a reduction in the average lending rate to 14.4 per cent, some SME players claim they are yet to see a meaningful change in the cost of borrowing.

They argue that despite the transition to a risk-based pricing model, factors such as their stock and collateral have not been adequately considered when determining the interest rates they pay.

“That is what they are saying, but there is nothing they have reduced. We are still paying the same rates as before, between 18 and 22 per cent. Business has become difficult, and some of us are even being forced to close down,” Godfrey Mugo, a business owner in Nairobi, stated.

“That is not true because, for now, the interest rates are still very high. We are getting loans at around 20 percent interest, and the rates have not come down,” Mathu Kabuga, a business owner in Nairobi, stated.

However, the picture appears to be different for larger players in the manufacturing sector.

The head of the Kenya Association of Manufacturers says credit to the sector increased by 2.2 percent, with the risk-based pricing model helping spur borrowing and activity among manufacturers.

“The risk-based credit model has spurred a lot of activity in the manufacturing sector. It has also increased the number of loans that have been taken up by manufacturers. In terms of the numbers, we are looking at a 2.2 percent increase, about Ksh.38.8 billion,” Tobias Alando, CEO of the Kenya Association of Manufacturers, stated.

With non-performing loans remaining high, small traders are now urging banks to develop products tailored to their needs rather than broadly categorising them as high-risk borrowers.

They argue that such measures would allow MSMEs to benefit more directly from the growth in private sector credit and the transition to risk-based credit pricing.