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Law Capping interest rates
Rank: Member Joined: 5/21/2014 Posts: 184
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KulaRaha wrote:actuarywahisa wrote:KulaRaha wrote:Ummmmm CBK paid 14% on the recent bond...5.96 years to maturity...why bother lending to SME, taking general provision, taking risks etc. CBK 15 yr and 20 yr bond results And cut-off? It was 13.95% LOOOOOOOOOL Are you looking at the cashflows for the bank from investing in a bond vs giving a loan? LOOOOOL indeed. Rate capping will reduce the careless throwing around of money at poor quality prospects whether it's personal or business lending which is something the financiers ought to have been doing from the start. If disciplined lending is what is called credit-crunch then let the 'credit-crunch' continue. There are too many opportunities all around. Open your eyes and maybe you'll spot one
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Rank: Member Joined: 1/27/2012 Posts: 851 Location: Nairobi
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actuarywahisa wrote:I think that if one's business is profitable and well managed, it's the relationship with the bank or financiers that will matter most. Part of the relationship entails demonstrating the 'profitable and well managed' bit.
The rate cap has resulted in exponentially more people (and businesses) becoming more willling to take loans. It's up to banks to finetune their mechanism for picking out the good business from the increased number of prospects.
If there is money to give more personal loans, why would there be less money to give loans to SMEs? Therein lies the puzzle.
I think, in my humble opinion, that many businesses don't like to plan before approaching financial institutions for loans. @actuarywahisa. Stop thinking. Talk to those who know from experience. The banks are reluctant to know your business. Businesses world over loans to SMEs are riskier than personal loans. Before banks were dishing out loans, now they are not. FACT!
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Rank: Veteran Joined: 8/28/2015 Posts: 1,247
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bennry wrote:To be Honest business is tough. I had a loan kwa one of this small banks and they were still charging me 22%. I cleared the loan in the hope that i would get a topup but wapi...For other banks to give you a loan it has to be secured. if its a car its around 70% of the forced value.
The last quarter of this year has been thick. sijui January vile watu wa SMEs are going to survive. Employees wanagojea bonuses but pesa hakuna...
Things are thick.
Then the government is on a looting spree and we are still being indifferent just cause we are sitting on our comfort zones. 2017 is going to be so so so bad.... Enyewe, things are thick but the thicker the thing the sweater the pie,,,, And so I got just three quiz begging for answers or critique. 1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you? 2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way) 3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag? ,Behold, a sower went forth to sow;....
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Rank: Elder Joined: 7/26/2007 Posts: 6,514
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muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above Business opportunities are like buses,there's always another one coming
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Rank: Elder Joined: 7/22/2009 Posts: 7,872
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We have been saying this all along but the M-Shwari Crew will never understand! Isorait!! Quote:Frankly, it was utopian for Kenyans to assume that interest rate capping would unleash lending and attendant business and economic growth. Liquidity seems to have tightened rather than loosened, as some analysts myself included, had warned.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 6/23/2009 Posts: 14,256 Location: nairobi
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KulaRaha wrote:muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above On 2.0 consider the risk of default.. Meanwhile at the end of the day, banks will still exist, but not the niche ones.. Larger banks who operate a financial supermarket model, shall thrive
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Rank: Veteran Joined: 8/28/2015 Posts: 1,247
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KulaRaha wrote:muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above  Hapa umeniweza. So banks are more willing to lend to government at less than 14% than they would lend at 26% plus. And at 26% plus they, lend more to SME and wanjiku based on higher risk of default and not better returns? If its definite that a creditor will default, what interest rate would a banker quote? 100%, 100000000% plus collateralization? Interest rate is the cost you pay for acquiring capital. In a free market its wholly determined by demand and supply forces and marksup the return on banks investment. Simply low profits are most likely associated with low profitability and low default risk. ,Behold, a sower went forth to sow;....
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Rank: Elder Joined: 10/18/2008 Posts: 3,434 Location: Kerugoya
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I believe it is time we derived a clear meaning of what constitutes a small and medium enterprise, SMEs. This way, we can be able to think through our posts and stop making what I discern to be failure to differentiate their loans with personal loans. Take, for example, Ms Anzetse Were, a Development Economist, whose article in the Business Daily dated December 4 2016 under the headline: SMEs Grapple With Credit Squeeze In Era Of Rate Cap, clearly fails to distinguish between the two. Extract:“It is not all bad news, however. Saccos (Savings and Credit Cooperative Societies) have become a more attractive financing option particularly given that some already provide credit to members well below current bank rates. This may lead to expansion of this sector thereby broadening financing options for Kenyans. Further, increased difficulty in assessing loans will make it harder for Kenyans to take on credit for consumptive rather than investment purposes. Applications will have to be thought through more rigorously than perhaps previously. This is good news.” Link.
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Rank: Veteran Joined: 8/28/2015 Posts: 1,247
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defination of SMEsaemathenge wrote:I believe it is time we derived a clear meaning of what constitutes a small and medium enterprise, SMEs. This way, we can be able to think through our posts and stop making what I discern to be failure to differentiate their loans with personal loans. Take, for example, Ms Anzetse Were, a Development Economist, whose article in the Business Daily dated December 4 2016 under the headline: SMEs Grapple With Credit Squeeze In Era Of Rate Cap, clearly fails to distinguish between the two. Extract:“It is not all bad news, however. Saccos (Savings and Credit Cooperative Societies) have become a more attractive financing option particularly given that some already provide credit to members well below current bank rates. This may lead to expansion of this sector thereby broadening financing options for Kenyans. Further, increased difficulty in assessing loans will make it harder for Kenyans to take on credit for consumptive rather than investment purposes. Applications will have to be thought through more rigorously than perhaps previously. This is good news.” Link. ,Behold, a sower went forth to sow;....
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Rank: Elder Joined: 7/22/2009 Posts: 7,872
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muandiwambeu wrote:KulaRaha wrote:muandiwambeu wrote:
1.0 Where are the lenders(banks) investing money retired from high risk creditors if not lending you?
2.0 if to the low risk (risk free gaament paper) low returns secure government paper, will the loss of risk equate to the loss of returns? Of coarse this is obvious and since the investment style leads to declining banks shareholders wealth (haircuts on the way)
3.0 so, if sooner or later a banks shareholder is expecting haircuts, how should someone adjust to the likely unfolding reality? Simply, where are you putting your eggs post eating the stocks in store/ post ending prevailing fy (purely on account of time lag?
1.0 Pls see the rush to GoK paper 2.0 Low return? Return on GoK is 14%, return on SME is 14%. 3.0 See 1.0 answer above Hapa umeniweza. So banks are more willing to lend to government at less than 14% than they would lend at 26% plus. And at 26% plus they, lend more to SME and wanjiku based on higher risk of default and not better returns? If its definite that a creditor will default, what interest rate would a banker quote? 100%, 100000000% plus collateralization? Interest rate is the cost you pay for acquiring capital. In a free market its wholly determined by demand and supply forces and marksup the return on banks investment. Simply low profits are most likely associated with low profitability and low default risk. Are you being serious right now!!?? Risk MUST be factored in in any loan even in Utopia let alone in "free markets"!!! Walk into any bank in Manhattan and try to get a loan at the same rate as the fortune 500 companies or any blue chip company for that matter. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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