Kenya's chief executives give rate cap the thumbs up

Nick Nesbitt, IBM Managing Director , Majo Rosa Country Director - Oxford Business Group, Vimal Shah, Chairman Bidco, Corine Mbiaketcha Nana Managing Director Oracle Kenya and Anne Kirima, Chairperson, Kenya Investment Authority at the launch of the OBG Business Barometer Kenya CEO Survey

NAIROBI, KENYA: Capping of interest rates has made credit more affordable, say chief executives in the private sector, even as their confidence on business prospects soars, indicates a recent survey.

This is despite the rate cap making loans harder to get from banks.

A survey of over 100 top executives by global publishing, research and consultancy firm Oxford Business Group (OBG) from across Kenya’s industries showed bullishness on the country’s economic prospects for the coming year.

The first edition of the Business Barometer Survey was done in partnership with the Kenya Investment Authority (KenInvest) and was designed to assess business sentiment among leaders in the rank of chief executives or equivalent for the next 12 months.

KenInvest Chairperson Ann Kirima Muchoki said that while factors such as credit capping, drought and protracted elections had combined to keep gross domestic product growth below five per cent in 2017, the strong business sentiment evident in the OBG survey reflected an improving outlook.

“Positive developments in key areas of the economy, including the tourism industry and significant rainfall in the latter part of 2017, are among the positives noted by both analysts and business community,” she said.

The capping of interest rates has once again become a hot issue following the National Treasury’s recent proposal to scrap the related section of the law.

Banks have operated under a restricted lending regime for the past two years, with maximum interest rate fixed at four per cent above the Central Bank of Kenya benchmark.

The lenders have persistently called for a review or removal of the caps, with Parliament, which would have the last word, not keen to scrap it.

“The Executive has brought the proposal. But we also have a responsibility, like people’s watchmen, like people’s representatives to speak on behalf of the people... our people would not like the interest rate cap to be removed,” Kiambu Town MP Jude Njomo said last week.

From the 136 CEOs interviewed in the OBG survey, 95 per cent felt either positive or very positive about local business conditions for the coming year, while 75 per cent said it is likely that their company would make significant investment within the next 12 months. 

A sizeable majority (89 per cent) of respondents said the decision to cap interest rates at four percentage points above the Central Bank Rate had improved the cost of borrowing, but had made borrowing more difficult.