Market Observers call for alternative funding options for Kenyans

The country should keenly focus on growing alternative sources of funding even as the push to repeal a law capping interest rates gains momentum.

Analysts at Cytonn Investments reckon non-bank credit options will provide the necessary shift from over-reliance on commercial banks as major sources of funding.

“One of the ways is looking at alternative funding mechanisms, because if you look at the Kenyan economy currently, banks provide funding almost ninety five percent in terms of loans in economy, only 5 percent is coming from alternative funding mechanisms,” Cytonn Investment Manager Maurice Odour said.

Kenya currently has forty commercial banks, but according to Cytonn, there are plenty of other options to choose from for finances.

These include crowd funding, where you use small amounts of capital from a large number of people to fund a project, and venture capital, which entails financing small businesses with a high growth potential.

“To do this there is need to enhance capital markets development framework to ensure people are empowered and capital market participants are ready and also understand,” he said.

Late last month, the Central Bank of Kenya released a report which blamed the interest rate cap for undermining the conduct of the monetary policy.

The regulator further said the rate cap had led to a slowdown in credit growth, hence the need for a review.

Central Bank of Kenya Governor Patrick Njoroge remains optimistic that this is the way to go.

“Now we are going to them not just with a principled position but with actual data,” Mr Njoroge said.

Other sources include savings and credit cooperatives, though they may have certain restrictions upfront.

He was speaking during the release of Cytonn’s 2017 Banking Sector Report which indicates that the sector recorded a decline in net interest income to eight point four percent as a result of the law capping interest rates.

But repealing the one year old law may be an uphill task as the national assembly vowed to oppose any such attempt.

“These banks will just collude again and decide on the figures to write on that website and we are going to back to the same cartels that made us introduce these rules,” Jude Njomo, Kiambu Member of Parliament said last week after meeting the CBK governor.

Mr Oduor said there was need for stakeholders to have an honest discussion around the future of credit.

“Do away with the caps but ensure there is transparency in pricing loans and have a variety of alternative funding. This will empower consumers,” he urged.

The National Treasury is expected to table a Credit Management Bill in parliament, in efforts to ease credit access to individuals and businesses in the country.

Additional reporting by Kepha Muiruri