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.