EDITORIAL: Credit squeeze worrying – Business Daily

For the majority of Kenya’s small and medium-sized enterprises, 2018 was a year of immense difficulties. Access to credit shrunk to near rock bottom as banks shunned the private sector in favour of lending to government in the second year of interest rate caps.

Certainly, much of the problem is attributable to the mix of disruptive policies, including enactment of a law to cap interest rates and the huge increase in the tax burden.

The numbers being reported at the end of each financial period tell it all. Banks have moved away from their traditional role of allocating financial resources to the most productive sectors of the economy into becoming mere buyers of government paper. While this has cushioned the banks and ensured their continued profitability, it has had devastating effect on the real economy.

That is also evident from the billions of shillings in profits that more than one third of the companies listed on the Nairobi Securities Exchange (NSE) have collectively shed in the past year. This credit squeeze especially for SMEs, if not addressed, will soon have broader repercussions for the economy. In 2019, it will be critical that the state works towards reducing its appetite for domestic debt, which crowds out other sectors of the economy from borrowing.