Microfinance sees huge opportunity following banks’ interest rates cap

September 22, 2016
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The new law has seen interest rates for banks at 14 per cent but microfinance banks average interest rates charges are at 20 per cent/FILE
The new law has seen interest rates for banks at 14 per cent but microfinance banks average interest rates charges are at 20 per cent/FILE
NAIROBI, Kenya, Sep 22 – Micro Finance Banks see a huge opportunity for growth as bankers implement the new banking law capping Interest Rates at 4 per cent above the Central Banks Rate.

According to Maisha Micro Finance Bank Chief Executive Ireneus Gichana the possibility of credit rationing expected to hit the banking sector will see borrowers flock microfinance banks.

The new law has seen interest rates for banks at 14 per cent but microfinance banks average interest rates charges are at 20 per cent.

Gichana says the move will not necessarily cripple the economy because borrowers have other options that include micro finance banks.

“Microfinance banks now need to position themselves as to go to when banks begin the credit rationing,” he told Capital FM Business.

Maisha Micro Finance Bank was licensed by the Central Bank of Kenya in July and it plans to focus on building Small and Medium size enterprises.

“Since our launch we have over 400 customers with a plan to hit the 50,000 mark by end year, during our research, one thing came clear, Small and Medium Enterprises lack enough capital, they need short term loans to finance their businesses, we are planning to partner with them to boost their businesses,” he added.

The new banking law has been termed as harmful to the economy as it will lock out risky borrowers and lower growth of banks.

Banks whose main goal is to sell money have been the best performing companies in the recent past recording billions as profit.

This is however expected to change as the new law takes effect.

According to Central Bank of Kenya Governor Patrick Njoroge Kenyan banks have been enjoying interest rate spreads of about 11.4 per cent on average, way above the world average of 6.6 per cent.

Moreover, their Return on Earnings (ROE) was at 30 per cent while for banks in other places such as Europe it is at 7 per cent, South Africa is at 15 per cent.

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