Kenya can do more to boost credit: IMF

Bloomberg

Kenya should do more than removing interest-rate caps to boost access to finance and credit extension, the International Monetary Fund’s (IMF) Africa director said.
“There is also a need to foster more competition in the banking system,” Abebe Selassie said in an interview in Kenya’s capital, Nairobi. The sector should “have effective credit bureaus and quick resolution of disputes,” he said.
President Uhuru Kenyatta recently rejected a bill that seeks to retain caps on interest rates that banks can charge on loans, paving the way for the removal of a law that critics say has been choking the economy.
The 2016 law limits the amount lenders can charge on loans to 4 percentage points above the central bank rate.
A court in March annulled the legislation and suspended enforcement of the ruling for a year to give lawmakers time to reconsider its provisions. While the rate caps were intended to improve lending terms for consumers, it has instead made institutions more selective in who they provide money to, cutting into banks’ profit margins and sending people to borrow from unregulated micro-lenders at even higher rates.
“We felt rate caps would not have the intended consequences,” Selassie said. “If you talk to most borrowers, they will say that access to finance — even if comes at a somewhat higher price — is much better than having no access at all.”
Banks have started looking at their business models to improve efficiency, central bank Governor Patrick Njoroge said at an IMF event in Nairobi.