The crazy world of finance in Kenya

Kenya’s Business Daily reports:

Florence, a publishing executive, has also received an email from Standard Chartered Bank informing her of changes in her interest rates from 17.5 per cent to 27 per cent effective November 19.

….. Last week, a Nairobi-based Chinese developer had his overdraft facility of $10 million reduced by half, and his $30 million loan negotiations on a new project put on hold after the bank informed him of its intention to use a new interest rate of 28 per cent instead of the earlier 19 per cent for the housing project.

28% on a $30m loan. Think about the returns that make such an investment remotely imaginable.

Basically what is happening in Kenya is that government borrowing, coupled with an inflation-wary central bank, has dried up the credit market. It is unfortunate that misperceptions of risk continue to limit entry of global firms into the finance space in many emerging economies like Kenya’s. The Kenyan government is now paying more than 20% on short-term domestic debt. Think about that for a second.

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2 thoughts on “The crazy world of finance in Kenya

  1. As a Nigerian i can relate to this. increased cries over the crowding out effect of government borrowings is an issue that needs to be addressed for proper and effective deployment of capital that can truly support and drive economic growth.

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  2. Political supremercy and the undoing of previous regime creates the the mindset for current government in power to take economically risky development projects such as the “SGR” to remain politically relevant in future power contest while paying less attention to local economic productivity. This creates an imbalance in trade between Kenya and for example China, the economy cannot sustain the current level of borrowing, the future is quite bleak in my opinion if much effort is not placed to boost local productivity.

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