IMF’s clamour for interest rates review reeks of undue meddling

PHOTO:COURTESY

It is unfortunate that the International Monetary Fund (IMF) has lately been championing the interests of big investors at the expense of ordinary citizens.

Yet, these are the people who require active State protection, lest they be trampled under the feet of local and foreign investors in their quest for higher profits.

A good example of this is IMF’s argument that the recent cap on interest rates is solely responsible for the slowdown in credit to Small and Medium Enterprises (SMEs) this is not entirely true.

This is borne out by the realisation that the slowdown in credit uptake started well before the National Assembly passed the Banking (Amendment) Act which capped interest rate.

The only reasonable conclusion that can be drawn from the IMF joining the rate cap critics despite this reality is that it has been enlisted to force the Government to change tack and allow banks to go back to the days when they charged exorbitant rates.

The result was the collapse of many businesses that depended on loans.

The good news for the beleaguered local borrowers is that Parliament has vowed to reinstate the rate cap were the government and its regulatory agencies—including the Central Bank of Kenya (CBK)-to tamper with it.

OTHER INSTITUTIONS

Instead of listening to those calling for the scrapping of the interest rate cap, the Government should instead consider ways to spur economic development and leave banks to figure out how they will go back to the days of double-digit profits growth.

The lenders have already taken the easier option of mass sackings of employees and closing of branches.

Collectively, the banks have sacked more than 1,200 workers since last October.

Perhaps the introduction of the rate cap and the banks’ near-unanimous response might be a silver lining and could lead to the emergence of other financial institutions offering better-focused and complementary services.

Such services, however, need not be restricted to new entrants as existing players could jump right in.

A look at many farming communities reveals that lack of appropriate knowledge of the markets often leads to high default rates.

This, however, need not be the case because this information could be easily accessible to banks’ employees.

At the same time, the Government should make a habit of sourcing most of its funds from ordinary Kenyans going by the recent success of the Sh150 million mobile phone-based M-Akiba bond.

The hunger with which Kenyans went for the bond was a clear demonstration that they are hungry for good investment opportunities.

The partial-closing of the window through which banks made tonns of money with little effort might force them to re-think their lending and deposit-taking strategies to align them with the emerging realities.

Holding back issuance of credit to the SMEs and other sectors of the economy could well prove counter-productive to the banks’ long-term interests.