Demand for consumer credit remains high despite rate hikes – Jijenge Credit Ltd

By Remie OTIENO

Kenya’s central bank interest rate hikes in the month of June may have controlled inflation, but there is still a growing appetite for private sector credit – particularly the Micro, small, and medium enterprises (MSMEs), according to micro lender – lender Jijenge Credit Ltd.

The annual inflation rate in Kenya eased marginally to 7.9 percent last month, down from 8 percent in the prior month but still above the central bank’s preferred range of 2.5 percent to 7.5percent.

The Central Bank of Kenya (CBK) has raised its rate nearly four times – from seven percent in May to 8.75 percent in November, with its June 26 meeting being the highest seen thus far.

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The banking regulator lifted the CBR by one percentage point at the surprise MPC meeting to 10.5 per cent from 9.5 per cent, setting the benchmark lending rate at the highest level since July 2016.

The rate of increase was also the highest in nearly eight years since July 2015 when the CBR rose by 1.5 per cent.

The new CBK governor Kamau Thugge, said while making the announcement that the hiked Central Bank Reference Rate (CBR) will put brakes on rising inflation, and although the raised anchor lending rate will push up the cost of borrowing, it is expected to ease the cost of living in the coming three months.

Projections from the International Monetary Fund (IMF) indicate that tighter monetary policy in the country and globally will enable a sustained slowdown in inflation rates despite the ongoing turbulence in eastern Europe – Ukraine.

Such decisions, however critical, often come at a cost to businesses both big and small, according to Jijenge Credit ltd Chief executive Peter Macharia.

“Rising interest rates make your business debt more expensive, which means you’ll have to use more cash to cover your interest costs,” offers Mr. Macharia, also an economist and a regular columnist on economic matters.

Adding that, “Depending on your business’s overall financial health and profit margins, you might have less flexibility to invest in long-term growth—or less day-to-day cash flow stability. This has been the case across all lending firms since those adjustments were made. And unsurprisingly the demand for quick loans is still high.”

If you are a borrower, he notes that, rising interest rates will usually mean that you will pay more for borrowing money, and conversely, lower interest rates will usually mean you will pay less.

“How much of an impact will all depend on whether your borrowing is tied more to short-term rates or longer-term rates,” he says.

Another potential result of higher interest rates, he noted, may see businesses pull back on borrowing and investing, which means consumers and businesses would start spending less and eventually bring demand back down to a level that’s commensurate with supply.

On the other hand, Macharia points out that the drawbacks of keeping interest rates low for a prolonged period, also have the potential to over-indebtedness of an economy, overvalued asset prices and undervalued risks, misallocation of resources and credit, and lower overall productivity.

Kenyan MSMEs contribute to over 90 percent of the total labor force and help to reduce poverty and grow the economy and are also a source of innovation, competitiveness and an important outlet for the entrepreneurial spirit of Kenya’s people.

Their existence according to Jijenge’s Macharia, cannot be undervalued and as such their growing quest for credit only points to an ever-increasing demand for loans by that cluster.

Jijenge Credit is one of the largest growing financial institutions in the country targeting clients who are unable to access financial services from banks and those seeking loan approval over a short period of time within one hour.

It also specializes in Title Deed Loans, Check-off loans, School emergency loans, import duty finance, LPO financing, bid bonds as well as asset financing among others. The company has tracking technicians and valuers who assess an applicant’s assets before a loan is issued.

Such services saw the lender recently crowned for being a judicious pacesetter in Credit Finance Solutions by the Jubilant Stewards of Africa at the 2023 pacesetters awards Eastern Africa Chapter.

Jijenge was one of the first 10 applicants that made it to the CBK’s initial list of compliant players following calls by the regulator on heightened oversight of Digital Credit Providers (DCPs) in the country.

But as of March 2023, data by the Central bank shows that of the close to 700 microfinance institutions and digital lenders that had applied for licenses, only 32 have received CBK’s nod to continue lending.

The regulator came up with the regulations for digital lenders following an outcry of predatory lending as well as concerns of money laundering.