Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.


High African interest rates chase away investors: UN

19 July 2014, 10:20

Nairobi - The United Nations on Friday decried the prevailing high bank interest rates in the continent which has discouraged many investors to take credits from banks.

The United Nations Economic Commission for Africa (UNECA) Senior Economic Affairs Officer Andrew Mold told Xinhua that the situation is partly caused by the big spread in interests maintained by the banks.

"This situation is unjustified because it limits the amount of credit that is lent to the private sector," Mold said during the launch of the African Development Bank on Eastern Africa's manufacturing sector.

He said the difference between deposit interest and loan interest in the continent is around ten percent.

This compares unfavorably with the developed economies where the spread is approximately five percent. "This situation makes it very difficult for the private sector to access finance," he said.

"On average less than 20 percent of the working capital of Africa's private sector is derived from commercial banks," he said. The rest of the funds is sourced from reinvested profits, or the capital markets.

On July 9, the Central Bank of Kenya (CBK) and Treasury implemented a new loan-pricing rule to determine borrowing rates charged by commercial banks.

The CBK is now implementing the Kenya Banks Reference Rate (KBRR), a loan-pricing formula that is based on averages of the CBK indicative rate and the 91-day Treasury bill yield over six months.

The KBRR will be the base rate for all commercial banks' lending and will be reviewed every six months, hence the interest rate on a borrower's loan will keep changing after every six months.

With the indicative rate standing at about 9 percent in over one year, most banks have been charging more than double the amount, raking in huge profits.

The rate has been maintained at the level since April 2013, with CBK noting that inflation is under control and the shilling has stabilised.

According to the UNECA, the high cost of credit reduces the amount of investments in the region. Mold urged African governments to put in place policies that will reduce the cost of credit.

"One way is to encourage competition in the banking sector," he said. The financial sector suffers from high levels of inefficiencies.

"This means that the high operational costs are passed on to consumers through high loan interest rates," Modi, who is also the UNECA Chief of Sub-Regional Data Centre, said.

The banking sector is one of the most profitable businesses in Africa. "In Kenya, for example the top corporations are usually banks," he said.

Modi added that most of the industry's revenue is derived from trading in government securities rather than from lending to the private sector. "The private sector is perceived to have higher risk of default," he said.

- Xinhua

For the latest on national news, politics, sport, entertainment and more follow us on Twitter and like our Facebook page!


Read News24’s Comments Policy

Comment on this story
Comments have been closed for this article.

Read more from our Users

Submitted by
William Korir
CORD to stop Jubilee efforts to r...

The CORD Coalition will not allow plans to remove Kenya from the Rome Statutes take place, it has said. Read more...

Submitted by
William Korir
How long will it take Kenya to le...

Kenya is looking to leave the ICC. But what is the process behind the exit? Read more...

Submitted by
William Korir
Jubilee resumes efforts to push K...

Kenya will this week resume efforts to leave the ICC court. Read more...

Submitted by
S Mbinya
How to treat him right

Men want to go home to a woman who makes them feel loved and appreciated. Here's how to make him feel special here: Read more...

Submitted by
S Mbinya
Kenyans demand action after femal...

This comes a few days after a female passenger was drugged and then robbed in a matatu plying the Kenyatta – Kencom route. Read more...

Submitted by
S Mbinya
Natural aphrodisiacs to boost lib...

It is advisable to take them before sex in order to achieve maximum benefit. Read more...