Speaking at the close of Credit Bank week-long deposit mobilization exercise in Kisumu, Assistant Minister forFinance Dr. Oburu Odinga called on commercial banks to respond positively to the prudent fiscal and monetary policies put in place by the Government by lowering their lending rates and other charges.

"We expect the banking sector to support our effort to develop this country by providing affordable interest rates. However, as a Government we are concerned that interest rates spreads remain unusually high," Dr. Oburu said.

He continued: “While we believe in efficacy of the market forces to allocate resources, it is important to see ourselves in the wider mirror of the society. As we work to address the factors that determine interest rates let banks also appreciate that they are also part of the society. It’s only by working together that we can hope to conquer poverty and hunger on a sustainable basis.”

Economic analyst Dr David Ndii, however, holds the view that banks are not to blame for the higher rates, entirely.

"The main reason is that credit is risk.  In a country with a huge risk like Kenya the risk to economy is high so interest rates are high. If the Government wants a high credit uptake then it needs to work on reducing risk; perceived or real, by rethinking its regulatory policies," Dr. Ndii said.

Credit Bank’s Chief Executive Nok Bwonditi said high cost of doing business and higher rates of loan defaults were the main factors driving interest rates.

"One thing that makes banks not to lower interest rates as the market would wish is the high cost of doing business. For instance, every bank branch has a standby generator because of power interruptions and that’s an additional cost that needs to be paid for. Secondly, the market has also recorded higher rate of defaults with some people borrowing with no intention to repay thus causing interest rates rise. However, with the coming of credit reference bureau such cases will reduce and banks will respond positively," Mr. Bwonditi said.

Dr. Oburu said the Government was committed to pursuing policies that foster the private sector by investing heavily in infrastructure and reforming the regulatory framework to minimize cost of business in the country.

County business

The Assistant Minister also noted that despite faster growth of the financial sector, many people in the remote rural areas had remained unbanked, urging banks to take advantage of the new economic order presented by the new constitutional dispensation.

"The new constitution and Vision 2030, the country social-economic and political blueprint, reinforce the fact that rural based development will be the focal point in future resource allocations and decentralization of decision process as concerns development matters. It’s imperative that banks reposition themselves to take advantage of this new economic order," Dr. Oburu said.

The new constitution puts more emphasis on the county based model of promoting development agenda and governance. The essence of this approach is to ensure service delivery to the people at the local levels and their participation in decision making in matters affecting their own lives.

GAROWE ONLINE