Kenya now ranks in the top three nations in Sub-Saharan Africa for access to credit, according to ICAEW’s (the Institute of Chartered Accountants in England and Wales) latest report.
In Economic Insight: Africa Q3 2015, launched today, the accountancy and finance body points out that only Rwanda and Zambia top Kenya for ease of credit financing.
The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, provides a snapshot of the region’s economic performance focusing specifically on Kenya, Tanzania, Ethiopia, Nigeria, Ghana, Ivory Coast, South Africa and Angola.
Michael Armstrong, Regional Director, ICAEW Middle East, Africa and South Asia said: “Access to finance is a vital driver of economic growth, so this is great news for Kenya. The interest cap enacted in Kenya benefits customers by both keeping the rates regulated, as well as spurring greater competition amongst banks. It could also further incentivise more accurate credit scoring. All of these measures should help Kenyan businesses in the longer term.”
According to the report, and drawing on insights from World Bank’s Doing Business Rankings, Rwanda performed the best in Sub-Saharan Africa in terms of access to credit. In second place was Zambia followed by Kenya, Ghana, Mauritius, Uganda, Namibia, Nigeria, South Africa, Botswana, Zimbabwe, Ivory Coast, Tanzania, Ethiopia and Angola.
Rwanda has made several reforms to facilitate access to credit in the past 6 years thus pushing up its rank. Kenya too has made gains in access to credit by enacting a law prohibiting banks from lending at rates higher than 4% over the Central Bank rate.
Angola, which came in the bottom of the rankings, has only seen one reform made in the past 6 years regarding access to credit. Furthermore, despite the country having the third largest banking system in Sub-Saharan Africa after Nigeria and South Africa, only a small portion of the population is banked and few business apply for loans.
As a whole, Sub-Saharan Africa performed relatively poorly compared to other regions in terms of access to credit with a regional average Distance to Frontier (DTF) score of 35.9. The DTF score captures the gap between an economy’s performance and a measure of the best practice across the entire sample – with 100 being the frontier. The lower the DTF score achieved, the worse the access to credit.
The report also shows:
- ▪ East African countries have eased monetary policy over the past year while their West African counterparts tightened it in an effort to slow inflation
- ▪ Kenya enjoys lower borrowing costs compared to Uganda
- ▪ Rwanda and Kenya have maintained strong growth momentum into 2016, recording real
GDP growth of 7.3% year-on-year (y-o-y) and 5.9% y-o-y in the first quarter of the year respectively; Uganda recorded a relatively disappointing 3.4% y-o-y rate in the same quarter.