Capping interest rates..could cost GDP growth to drop by 2% in 2 years

[Globalcitizen12]

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Who is that brain haired idiot that thought capping interest rates was going to help mama mboga? I think Idiots shouldn't be allowed to pass laws they have no understanding about. the reason why credit is expensive in Kenya is because the RISK is higher. If the economy was stable, inflation under control and income higher then credit cost would be lower. For some idiot MP to expect that a bank to lend a personal loan to some client with a dodgy business idea like building rental houses in the middle of nowhere at low rate while the same banker can walk to treasury and buy government bonds making same interest rate with less hustle is ridiculous.

The problem with tribalism it forces politicians to cater to whims of their tribal base. Uhuru had to accent this stupid law because most of the people who were Kikuyus and a central populist Mp as the sponsor.

Economists had right advised him not sign the bill into law because they understood that the law was going to hurt the poor and small scale traders.

Donde was maverick fool and so is this Ichungwa moron


back in the 80s when there were controls on prices and everything else shortages, lack credit were very common.. Now it seems mama mboga, real estates and SMEs are having trouble accessing credit.

http://www.businessdailyafrica.com/markets/news/CBK-probe-economic-downturn--slow-credit-growth-/3815534-3868276-6dnvcxz/index.html

[RV Pundit]

The country should never fear to experiment with policy. Let us review this law after we have known the impact well. Many people are relieved because the cartel like banks are now under control. Some banks are still making money - Co-operative and KCB -- are example of such.

[Globalcitizen12]

You just do not understand.the  downside of capping interests rates is that few people get loans..banks will always make money.  The government policy is to help more business grow by expansion of credit..the article clearly points to this and that if the capping goes on economy will grow by less by about 2 percent. Even in USA where interest  rates are low if I want to start a side hustle and finance it without savings I have borrow at higher interest may be charge a credit card once I have established cash flow I can refinance at lower interest..cbk will release numbers soon. It was a mistake to even allow this to happen. The cost to economy is not worthy it..

[RV Pundit]

Our banks have been making abnormal profits for 30yrs. CBK and Treasury should allow more time so we can see the full impact of this. Our banks were on average lending to business at 20%. Some of them were lending at 25%. The worst part is for someone who takes a loan today at 14% then banks wake up and increase the interest to 25%. Tell me which business you can repay money with 25%. All this talk about SMES doesn't cut for him - few banks were lending to SMES anyway.

The good thing with this law is that PORK/CBK/Treasury are powerless - it has to go through parliament - and that can only happen when one can demonstrate that disaster. IMF and WB have been wrong so many times...remember SAP...we shouldn't listen to them.

Let this experiment continue for at least 2-3yrs - and we can see the full impact. Our banks are definitely shedding extra fat and becoming more efficient.

You just do not understand.the  downside of capping interests rates is that few people get loans..banks will always make money.  The government policy is to help more business grow by expansion of credit..the article clearly points to this and that if the capping goes on economy will grow by less by about 2 percent. Even in USA where interest  rates are low if I want to start a side hustle and finance it without savings I have borrow at higher interest may be charge a credit card once I have established cash flow I can refinance at lower interest..cbk will release numbers soon. It was a mistake to even allow this to happen. The cost to economy is not worthy it..

[Globalcitizen12]

It is because of risk.  Most businesses in Kenya fail. Most lenders are not credit worthy. I grew around banking so I know how dodgy your average businessman js in Kenya. Do you know that very few people in Kenya understand how interest rates work and that capital is a business is not return..you will see a guy borrow 20 million to start a saw mill but he is so financially illiterate. The guy will use the money to buy a personal vehicle and may be upgrade his house ..by the time he starts his saw mill he is already short in capital..move around Nairobi and count all those stalled projects in real estate that is some bank capital lying idle and may be the loan is not getting serviced ..banks in Kenya are not gouging anyone

[Globalcitizen12]

Sap was right we needed it and we will need one soon to tame recurrent expenditure and

[RV Pundit]

Few banks lend to business without collateral. Most of them look for salaried individual and lend them. And still charge them 25%. I know many salaried folks who are slaves to the bank that keep raising interest rates making it impossible to repay the loan. SAP and many WB/IMF ideas are not well though out. I suspect their economist are mostly developed world economist.

It is because of risk.  Most businesses in Kenya fail. Most lenders are not credit worthy. I grew around banking so I know how dodgy your average businessman js in Kenya. Do you know that very few people in Kenya understand how interest rates work and that capital is a business is not return..you will see a guy borrow 20 million to start a saw mill but he is so financially illiterate. The guy will use the money to buy a personal vehicle and may be upgrade his house ..by the time he starts his saw mill he is already short in capital..move around Nairobi and count all those stalled projects in real estate that is some bank capital lying idle and may be the loan is not getting serviced ..banks in Kenya are not gouging anyone

[Globalcitizen12]

personal loans are expensive everywhere..even in USA without a good credit score you will pay up 25% or 15% while good lenders can get their loans at 1.9%.. Most of employees in Kenya are a big credit risk. take a teacher taking a loan educate his kids.. without any other income this will be hard to repay.. Collateral in Kenya is very expensive to recover. By the time you go to court get the right to be able to attach the property and sell it will take sometime.. If your collateral is land the harder the battle.. In places like Tigania banks used to not lend to locals who use land as collateral because once the lender defaulted violence would be unleashed on bankers.. You would have a guy walk in with a machete and demand his title back.. No bank wants these type of shenanigans if it can revert to government and borrow or just switch to corporate lenders..

Right now the civil service is bloated by over 40K employees.. Country governments like Nairobi need massive retrenchment to free up some of the capital for services and infrastructure.. There is no political will.. Political will be there  when Kenya debt becomes to much and GOK struggles to service it..

The reasons why these employees are getting charged 25% is because they are big credit risk.. if they are credit worthy they would stick with SACCOS.. During the height of Real Estate speculation in kenya borrowers used to play this trick
Borrow from Bank A using income/cash flow
Go to Bank B open an account divert Cash flow to this bank account
Borrow from Bank B
Then Go bank C do the same

That is how you had guys with very little income pulling together cash of over $200,000 to build real estate properties

 only the clever ones who did it slowly knowing that they had a plan to eventually pay off the loan.. those that speculated are now somewhere in Nai giving stories of how the banks robbed them.. one guy speculated on Muthaiga properties not knowing that market is very exclusive and has very few speculators.. he lost his shirt ..

by the time CBK realized this and asked banks to crackdown the malady had spread all the way to sukuma wiki farmer in the village.. In my own village women were taking husbands IDS out of the coat and running to the local microfinance and borrowing using the husband as a guarantor one woman took 25K and when the bank showed up to take the cow she fled  never to be seen again.. my own cuzo showed at my uncle's homestead with a camera took pictures of his cows and offered them as collateral. my uncle lost his cows this way.. He could not out fight the bounty hunter sent to recover the collateral.. it is a jungle out there

I think what needs to happen is we need some sort of consumer protection against unscrupulous lenders. There needs to be protection to very poor frow predatory lending
others the market ought to decide their fate

[RV Pundit]

We have CRBS now, credit scoring and credit sharing - so banks clearly have no excuse when they lend money. I agree on collateral being tricky- but our judiciary is becoming better. I think banks should not punish everyone by unilaterally raising interest rate to 25 (equity had 28% at some point) irrespective of whether one is good creditor or not - which is why we need capping in the short term - once banks behave - we can allow them to more leeway -- we should not remove capping - we just need to increase the cap - now it's 4% above CBR - we can make it 6-8% above CBR! so banks can lend at 16-18%. In Kibaki era - banks were all lending at 14-16%- I don't see anything that has changed macro-economically to warrant the previous 25-28%.

Also we can allow CBK or some moniterary committee to decide every Q what the cap is. The same way we have for fuel. They can meet and say this month - based on the fundamentals - the banks are allowed a cap of 10% above CBR - next month - they can say 5%.

CBK need to do more regulation - others the few bankster are gorging everyone eyes.

personal loans are expensive everywhere..even in USA without a good credit score you will pay up 25% or 15% while good lenders can get their loans at 1.9%.. Most of employees in Kenya are a big credit risk. take a teacher taking a loan educate his kids.. without any other income this will be hard to repay.. Collateral in Kenya is very expensive to recover. By the time you go to court get the right to be able to attach the property and sell it will take sometime.. If your collateral is land the harder the battle.. In places like Tigania banks used to not lend to locals who use land as collateral because once the lender defaulted violence would be unleashed on bankers.. You would have a guy walk in with a machete and demand his title back.. No bank wants these type of shenanigans if it can revert to government and borrow or just switch to corporate lenders..

Right now the civil service is bloated by over 40K employees.. Country governments like Nairobi need massive retrenchment to free up some of the capital for services and infrastructure.. There is no political will.. Political will be there  when Kenya debt becomes to much and GOK struggles to service it..

The reasons why these employees are getting charged 25% is because they are big credit risk.. if they are credit worthy they would stick with SACCOS.. During the height of Real Estate speculation in kenya borrowers used to play this trick
Borrow from Bank A using income/cash flow
Go to Bank B open an account divert Cash flow to this bank account
Borrow from Bank B
Then Go bank C do the same

That is how you had guys with very little income pulling together cash of over $200,000 to build real estate properties

 only the clever ones who did it slowly knowing that they had a plan to eventually pay off the loan.. those that speculated are now somewhere in Nai giving stories of how the banks robbed them.. one guy speculated on Muthaiga properties not knowing that market is very exclusive and has very few speculators.. he lost his shirt ..

by the time CBK realized this and asked banks to crackdown the malady had spread all the way to sukuma wiki farmer in the village.. In my own village women were taking husbands IDS out of the coat and running to the local microfinance and borrowing using the husband as a guarantor one woman took 25K and when the bank showed up to take the cow she fled  never to be seen again.. my own cuzo showed at my uncle's homestead with a camera took pictures of his cows and offered them as collateral. my uncle lost his cows this way.. He could not out fight the bounty hunter sent to recover the collateral.. it is a jungle out there

I think what needs to happen is we need some sort of consumer protection against unscrupulous lenders. There needs to be protection to very poor frow predatory lending
others the market ought to decide their fate

[Globalcitizen12]

Things have changed. A bank won't go for 25% when it thinks competitors can do 15% and make a profit.. The key here is if you want the bank to continue expanding credit or you want them to play safe. It is risk versus return the golden rule of business.. the higher the risk the higher the return.. If I got give Ngunjiri 10M to go build in kayole I should will hedge all my risks and seek the return that can compensate me enough to justify me lending to him..You cannot have your cake and eat it in market economy.. You either keep the cake or eat it

[RV Pundit]

If there is demand for credit - there will be supply - saccos, mfis, venture capital, fdi and foreign banks - will fill the void left by the lazy risk averse local banks. We don't need 45 undercapitalized banks who are knocked out by 1 or 2 mistakes in lending. We need to aim at South Africa level - 4 or 5 mega banks only. Nigeria banking reform is also an example we need to copy - they now have 18 banks for such a big economy. Of course CBK governor doesn't want small banks going under.

The stumbling block now is Dr Njoroge - IMF/WB economist - for the integrity we get - we are losing the innovative experimental environment we previously had.

Things have changed. A bank won't go for 25% when it thinks competitors can do 15% and make a profit.. The key here is if you want the bank to continue expanding credit or you want them to play safe. It is risk versus return the golden rule of business.. the higher the risk the higher the return.. If I got give Ngunjiri 10M to go build in kayole I should will hedge all my risks and seek the return that can compensate me enough to justify me lending to him..You cannot have your cake and eat it in market economy.. You either keep the cake or eat it

[Globalcitizen12]

Do not envy S. africa.. Our situation is unique.. South Africans majority of blacks are still in the kenya of 70s.. the only economy working in South Africa is corporate type... Kenya economy driver is SMEs.. they need the 45 banks that are willing to take a chance on them.. Big banks wont even bother with certain loans.. when we had only KCB and Barclays credit was very tight.. they wouldn't lend real estate speculators..