Business loans demand to increase, experts say

Demand for business loans is expected to peak in the last quarter of the year in what experts predict could commence immediately after August 9 general elections. 

The lingering effects of Covid-19 pandemic and the war in Ukraine have made life difficult for ordinary Kenyans and small businesses, some of which have had to trim down their operations and workforces to accommodate those adjustments.

Rising oil prices has led to inflation – where too much money chases too few goods – with the inflation averaging 7.9 per cent in June, according to Kenya National Bureau of Statistics (KNBS) on the country’s year-on-year inflation rate.

Those challenges, according to Peter Macharia, an economic expert, could soon start to slacken after the August 9 polls – a key deterrent to economic growth.

“We are likely to see an improved business environment after the general elections despite the inflationary pressures whose impact have swamped several businesses in the last few months,” he said. 

Kamau who is also Jijenge Credit Ltd CEO added that most of the businesses that suffered during the year, could seek loans for business expansion after the elections.

Economic activity

He predicted stability in the remaining part of the year, and a pick-up in economic activity after the polls, given the rising number of loan applications and credit growth that is often seen during the last three months of any given year.

According to economist XN Iraki, the current situation has especially affected the poor and their purchasing power.

“For instance, the price of maize flour, a staple in Kenyan households, rose from Sh150 to Sh200 between mid-May and June 2022. Yet, no salary or wage has gone up by 33 per cent over a similar period to protect consumers’ purchasing power,” he noted in his recent assessment of the upcoming polls and its impact on the economy.

Political uncertainty tends to have a significant impact on economic conditions, such as the cost of inputs like work and resources as well as customer behavior.

But it can also threaten business continuity, which is the simple ability for firms to carry out their daily activities.

In an inflationary environment, like what is being experienced in the country, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation.

Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

The only headwind that could face commercial banks, according to lending patterns, is the expected rise in high interest rates, which, while may put pressure on lenders’ ability to grow their profits, will also coincide with the need by traders to pump in investments to upscale their business operations.

Lost opportunities

“Banks will be making up for the lost opportunities eaten by those factors which is already a sign of confidence in the Kenyan economy,” said Macharia.

Ordinarily, the economy suffers if inflation becomes too high, but with controlled, lower inflation, employment increases and consumers have more money to buy goods and services, and the economy benefits and grows. 

The Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) last week surprised market expectations by leaving the benchmark interest rate unchanged at 7.5 per cent.

It attributed the hold in the Central Bank Rate (CBR) to recent government inflation to check runaway inflation including the retention of the fuel subsidy and the new unga subsidy.