Saccos poised to benefit as CBK increases bank lending rates


Savings and Credit Cooperatives (Saccos) and Microfinance institutions are expected to reap big following a move by the Central Bank of Kenya (CBK) to increase banks’ lending rates.

CBK Governor Kamau Thugge raised the benchmark lending rates to the highest point in nearly seven years on heightened fear of a spike in consumer prices.

The rise from 9.5 per cent to 10.5 per cent is expected to keep away a large percentage of the public from bank loans and opt for Saccos, which are not affected by interest rates determined by the CBK.

Data from CBK reveal that as of January 2023, Saccos and microfinance banks issued a sum of Ksh600.70 billion out of the Ksh1.12 trillion total loans processed. Banks handled the balance of Ksh515 billion.

Low interest rates and better terms, the speed at which the loans are processed, and the guarantee of safety of property in case a borrower defaults on repayment, are some of the reasons most people opted for Saccos for loans.

The regulator lifted the CBK rate by one percentage point at an emergency Monetary Policy Committee (MPC) meeting recently, setting the benchmark lending rate at the highest level since July of 2016; an 82-month high.

Wesley Manambo, a research analyst at Genghis Capital, said the decision is as a result of the increment of the Value Added Tax (VAT) on fuel, which shot from 8 per cent to 16 per cent and set to take effect on July 1, 2023.

“This is a forward-looking rate hike, with the CBK looking to contain the effects of the 16 per cent VAT on fuel and the impact of other taxes from the Finance Act 2023. The CBK is seeking to keep a handle on inflation,” he explains.

While lifting the benchmark interest rate, the MPC cited sustained pressure of inflation and observed risks for higher consumer prices, which in its view would have a negative impact on the economy. “Overall inflation is expected to remain elevated in the near term mainly due to the recent increase in electricity prices, the removal of the fuel subsidy, and associated second-round effects. Additionally, a mini-survey of the agriculture sector in the first half of June revealed that prices of some key food items, particularly sugar and maize, remain elevated,” the CBK said in a statement.

By Vostine Ratemo

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