The Kenya Private Sector Alliance (Kepsa) has urged banks to improve lending to businesses amid struggles for work capital in a tough economy.
The lobby said thank banks should set aside about 15 percent of their loan book to support private businesses, up from the current average of one percent.
The sentiments were voiced during this year’s annual Kepsa Platinum CEOs Breakfast forum which was jointly hosted by the private firms’ umbrella body and human resource tech firm SeamlessHR.
“The need for significant reform within Kenya's banking sector was highlighted, advocating for consolidation from 38 to approximately 15 banks,” Kepsa said in a resolution.
“A strong push was voiced for a transition from "lazy banking" (government security investments) to increasing private sector credit, with a target of 15 percent from the current 1 percent. Crucially, the discussion highlighted the need to shift towards cash-flow-based lending for SMEs and startups, rather than relying on collateral” it added.
Growth in loans to private businesses has in recent months taken a hit from elevated interest costs despite sustained cuts to the benchmark lending rate by the Central Bank of Kenya (CBK), with the strengthening of the local currency also contributing to the reduction of foreign currency-denominated facilities.
Latest CBK data indicates that outstanding loans to the private sector grew 0.2 percent to Sh3.838 trillion in March this year up from Sh3.829 in a similar month last year, representing a Sh8.6 billion growth in credit to households and businesses in absolute terms.
Commercial lenders have kept interest costs on loans elevated despite CBK’s push to trim down rates by reducing the benchmark rate since August last year.
Banks have previously blamed structural challenges as being constraints to a faster decline in loan interests, including rising loan defaults and increased competition for bank deposits from government securities.
