Sometimes back, we wrote a scathing and controversial opinion about the possible adverse effects of the much heralded rate caps in Kenya. How we wished we were wrong! We may not be that lucky. Going by the signs, we could be headed to the guillotine. To get an honest opinion from the borrowing public, we interviewed the business people who always supplement their working capital requirements with bank borrowings. And we didn’t like what we got.
While it may be too early in the day, the signs are too ominous to ignore. The small borrower is on the dock. Kenyan banks have frozen temporary Overdrafts and suspended all unsecured loans. More and more cheques are being returned unpaid. More SMES are cash starved as payments take longer, cheques returned and banks are reluctant to bridge the deficits. The language of the bank is back to the old- security, security and more security. Nobody would touch a borrower with a ten-inch pole unless they provide that coveted security. And the ratios are the same. Banks only give you a loan of up to 50% of the value of your security.
For along time, this traditional secured lending approach had been the biggest obstacle to banking explosion in Kenya. Somehow, in the euphoria of the NARC and grand coalition government coupled with the ingenuity of Equity, Family and Chase Banks, we managed to bypass it. Lenders, awash with excess liquidity found themselves begging borrowers to come and take their money. And to cover for the obvious security deficits, a common handicap among SMES, they would settle for households, stocks in trade and personal guarantees.
This was God send. Loan doors were opened for entrepreneurs who had never dreamed of ever stepping into a bank let alone get a bank loan. We were truly on the way to building more SMES while upgrading others to serious bankable companies. Until politics disguised as welfare economics reared its ugly head. Now we are back to square one. The old regime when your bank would not pay your cheque unless it was fully covered. A time when you needed tangible valuable security to secure a bank facility and not a bankable business idea or plan. An era when the bank manager was an undertaker to your business and not a facilitator.
Yes. It’s too early. Things will eventually settle. For bad or for worse. Yet we feel it’s important to report these early signs. We don’t have to wait for the house to crumble to asses the damage and propose remedial action. Its never too late to do the right thing. In our quick survey, there is little to celebrate in this euphoric legislation. Business people are struggling for cash as shylocks are laughing to their bedrooms as more cash starved business people put ropes around their necks by borrowing from loan sharks. What do you think?
This is the observation and personal opinion of Evans Majeni for African Market Media.