MSMEs at risk as CBK announces a 41.7% increase in Lending by Commercial Banks

The Central bank of Kenya (CBK) has recorded a double increase in lending rates towards the Small and medium sized enterprises. According to it’s statistics, the number of loans accounts held by medium, small and micro enterprises (MSMEs) increased by 41.7 per cent in almost three years.

MSMEs are becoming a vital economic pillar in Kenya today, that’s why many lending firms and commercial banks are slowly narrowing their attention to them. With the day from the Central Bank, there were 915,155 MSME loan accounts with commercial banks and microfinance banks as at December 2020, which is amounts an increase of 269,137 loans account, from 646,018 loan accounts as at December 2017.

The accounts had an an outstanding value of Sh638 billion, from Sh413.9 billion recorded in 2017. MSMEs have been projecting a huge deviance in improving the National income. In almost every sector of the economy, formal and informal, there root is quite overshadowing already grown companies.

In a statement report the CBK, says that the accounts have been growing at an average of almost 14% a parallel growth with the loans from lenders standing at 15% per year.

“The number of accounts grew at an average of 14 per cent per annum from 2017 to 2020 while the value of loan accounts grew at an annual average of 15 per cent over the same period. This is slightly higher than the 11 per cent annual growth rate for the overall banking sector loan portfolio over the same period,’’ CBK stated in the Bank Supervision Annual Report 2020.

Many banks are running to invest in these MSMEs because of their potential in the coming economies.

“The increase is attributable largely to enhanced marketing among MSMEs by commercial and microfinance banks as they compete for greater shares of the MSME market segment.”

With an increased number of investment schemes and programmes that have been introduced by some commercial banks in order to gain revenue from them, has rendered these MSMEs orphan of advice and consultation.

Yet in the country as the economy continue to battle the swollen sore of Covid-19, there are very few management and consultancy firms that provide accurate answers to these MSMEs. With the right approach and distinctive features MSMEs would realize the uniqueness in them. As the lending rates increase from banks the absolute zero derivative is slowly sloping and at one point if left MSMEs would be absorbed by banks in the name of owning bank their investments.

This activity has also been fueled by higher competition in the corporate, personal and household sectors.

In addition to that, the report also showed deposits held by MSMEs as at December amounted to Sh577.6 billion which relates to a 14.4 per cent of the total deposit liabilities for commercial banks that stands at Sh4.01 trillion.

However, this was a drop from Sh585.8 billion representing 20.2 per cent of commercial banks’ total deposits at Sh2.89 trillion in the period under review. CBK added that 204,802 of the 915,115 MSME loan accounts as at December valued at Sh98.7 billion were non-performing.

The economy has the potential of growing if the support is given back to MSMEs. It should be noted that most entrepreneurs in such small businesses often depend on their own savings to push their businesses. With the funding rates in loans increasing, a preassumption would be in the next four to five years booming MSMEs that are today would have lost grip. The worst of all is despite thanks giving consultancies and business managerial skills most are income oriented only. Their investment only matters negative to independent consultancy firms.

Mombasa, Kenya.