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"content": "The second part of the question is on the impact of high rates on development and economic growth particularly in the counties. It is true that the rate of economic growth and development is to some extent dependent on the ease with which productive enterprises and individuals can access funding to transform the viable ideas and opportunities into productive ventures. These funds can be obtained either through floating equity or through borrowing. In this regard, the high interest rates will raise the cost of borrowed capital and thus contain investments. We have made commendable progress over the years in growing the private sector credit. The private sector credit ratio to GDP has grown from 25 per cent in 2005 to 40 per cent in 2013. This shows that despite the high interest rates, credit to private sector has continued to grow. This compares favourably with other countries in the region such as Nigeria, Tanzania, Uganda and so forth. But, of course, when you compare with other countries, it is lower, for example, in Mauritius, Malaysia and South Africa. This is largely credit for working capital. That is the one we refer to here. Therefore, the presence of bankable projects and the growth of the economy increases opportunities for investments and, thus, lowers the cost of credit. There is a schedule that has been provided with all those details, comparing all the countries in the region for the last five years. This is on the lending rates in those selected countries. Mr. Speaker, Sir, based on several studies, the main factors contributing to the high lending rates in Kenya include the following:- (1) The high overhead costs such as the wage bill, the cost of realizing collateral, infrastructure, particularly roads, power and stability, cash in transit costs and costs of the commercial justice system. Those factors are critical in determining the overheads that the banks charge on to their lending rates. (2) High credit risks. It is only in 2010 that the credit information sharing was introduced to enhance credit risk management. Since it was introduced, in the last couple of years, over three million requests for information from the Credit Reference Bureau (CRB) have been registered, to the best of my knowledge. (3) The existence of alternative investment opportunities for banks with higher returns. So, banks always have an option, to lend or invest in other areas where they have got higher returns. (4) There is also the lack of effective competition due to prevailing market segmentation. Large banks are able to mobilize large deposits at much lower interest rates than smaller banks. Mr. Speaker, Sir, those are some of the factors that contribute to the high lending rates. I have mentioned those four factors, among others. Lastly, on policy initiatives and reforms to curtail the high lending interest rates, in an effort to deal with the above factors, several policy reforms and initiatives have been already been undertaken. Very briefly, these include the following:- (1) The establishment of currency centres by the CBK in partnership with the Kenya Bankers Association (KBA) in an effort to mitigate the high cost of transporting cash. These days, we do not carry cash. They have set up centres to reduce the cost of transporting cash. The electronic version of the Senate Hansard Report is for information purposes only. A certified version of this Report can be obtained from the Hansard Editor, Senate."
}