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Shrinking credit access set to hit businesses this year

Sunday January 15 2017

Companies face a looming credit crunch this year which is likely to turn them to alternative sources of financing, an analyst has said.

The country has been on a credit squeeze since October last year, with banks rationing loans following an interest rate cap.

In an outlook of the economy, research firm Mentoria Consulting says Kenya will consequently need a major dose of resilience as macroeconomic indicators point to a challenging 2017 for businesses.

“The inability by businesses to have access to traditional credit from banks sets the stage for a dramatic shift to alternative sources of funding such as private equity,” says Mentoria Consulting chief economist Ken Gichinga in a research note.

He notes that the passing of the interest-capping law by Parliament had failed to accrue benefits to the public and businesses. Private sector credit growth retreated from 19.5 per cent to 4.8 per cent late last year, the slowest pace since June 2008.

The firm adds that an impending election and drought in parts of the country could weigh heavily on growth.

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“That said, Kenya remains a beacon of growth across the continent. Its diversified economy continues to insulate it from the global commodity slump that has affected economies in West and Southern Africa,” he says.

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