In September 2016, the President assented into law a bill capping lending rates at 4.0% above the Central Bank Rate, currently at 10.0%, and the deposit rates at 70% of the CBR. Yesterday, we held a client training session at our Chancery offices along Valley Road on the effects of this law on the available investments opportunities.
Caleb Mugendi conducting the Training
Caleb Mugendi, an Investment Analyst at Cytonn Investments, explained that the interest rate cap carried a lot of expectations among consumers, including;
Ø Access to cheaper sources of funds
Ø A decline in the cost of goods and services
Ø Businesses were expected to register improved growth
“Owing to the capped interest rates, consumers who take up loans currently have an upper limit of 14% interest payments on the loans that they borrow. This is advantageous to business owners and investors, who can now access funds more cheaply than before.” noted Caleb.
However, banks have also adopted more stringent risk assessment policies, thus actually qualifying for new credit has become a bit more difficult than before, since banks have to price their customers into the capped upper limit risk profile. The upside to this is that other microfinance institutions and SACCOs also have reduced their lending rates in order to remain competitive in the lending space.
Section of clients who attended the training
Caleb concluded by stating that investors and consumers can use the low-interest rate environment to take up additional debt to invest.
To participate in our future Wealth Management Training, book a slot here: http://bit.ly/2jIOKGs