A large percentage of borrowers in Kenya are taking up loans to run their small business, a new survey by the Kenya Bankers Association (KBA), an industry regulator, has revealed. The new data found that 45% of the country’s borrowers took up credit to finance their respective enterprises.
The research also noted that 65% of borrowers took up personal loans.
“For borrowers who applied for personal loans, the majority took up unsecured loan product,” the organization said in a recent statement.
Only 25% of borrowers, however, took up secured loans.
The data indicates an increased appetite for credit more than a year after the country’s government set up a law that forced banks to put a limit on the amount of credit they can charge their customers.
This amendment put a limit on lending rates at 4% above Kenya’s Central Bank Rate (CBR), which is the lowest rate of interest the industry regulator charges on loans.
The move, which was introduced over a year ago, was supposed to a boon for borrowers, but bankers said it had adverse effects on the industry.
From as early as January 2017, the International Monetary Fund (IMF) urged Kenya’s Treasury to remove the bank interest rate caps. At the time, the global lender said the controls posed a risk to financial stability in East Africa’s biggest economy.
The Central Bank of Kenya (CBK) now intends to push for a repeal of the law, which had prompted banks to pull back on unsecured lending.
In a previous statement, CBK Governor Patrick Njoroge, however, warned that commercial banks will have to be more disciplined in the pricing of loans so as not to overcharge borrowers.
“What needs to change is the discipline among lending institutions. They cannot go ahead setting interest rates the way they were doing before,” he explained.