Tough times ahead as credit crunch stalks firms

Mabati Rolling Mills (MRM), Head of Marketing,Roofing, Harry Muchangi Njagi (left), shows some of the products the company manufactures. [David Njaaga,Standard]

Kenyans could be forced to dig deeper into their pockets for basic commodities as manufacturers move to raise financing for growth and investment.

Data from the Central Bank of Kenya (CBK) indicates most sectors of the economy experienced a sharp drop in commercial credit during the first quarter of the 2018/2019 financial year compared to a similar period the previous year.

The manufacturing, building and construction and mining and quarrying sectors were the hardest hit, with credit to the sectors contracting by 5.2, 5.3 and 5.3 per cent respectively during the period under review.

In the first quarter of the 2017/2018 financial year, the building and construction and manufacturing sectors recorded 5.8 per cent and 4.5 per cent growth respectively, painting a worrying trend in credit flow to the crucial sectors.

Worst conditions

The agricultural sector, which last year reported a 3.9 per cent growth in credit, on the other hand, saw a 4.4 per cent drop this year, with credit to the sector falling from Sh90 billion in the first quarter of the 2017/2018 financial year to sh81billion in the current financial year.

CBK attributed the credit crunch to the introduction of the interest rate caps.

“On 12-month basis, private sector credit growth remained low, declining to 3.8 per cent in September 2018 from 4.3 per cent in June 2018,” explained the CBK in part.

“The interest rate caps and tight credit standards remained the key constraints to credit extension to the private sector.”

According to the Stanbic Bank Kenya purchasing index, Kenya’s private sector last month reported the worst operating conditions since 2017, limiting the sector’s ability to create more jobs and raising the cost of basic commodities.