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How the new administration can make pro-business proposals work – Business Daily

President-elect William Ruto and his deputy Rigathi Gachagua display their election certificate at the Bomas of Kenya on August 15, 2022. PHOTO | AFP
Finally, we have a new government in office, and it has prioritised economic revival and transformation as its agenda. It says it intends to put the economy on a recovery path. Many people have been asking how progressive the pro-business proposal the Kenya Kwanza government plans to put in place is.
First, credit availability is essential for business investments and household purchases, which connect to real economic activity. For a long period now, government has been crowding private sector in the credit market by borrowing heavily in the local market.
This was coupled with pandemic negative effects which saw lenders increase their capital reserves to hold money rather than lend out to mitigate default risks and preserve stability. Today, the government is still borrowing heavily in the local market and banks are yet to cut their countercyclical buffers.
So, the new government intends to increase credit to small and medium enterprises by providing cheaper credit through the ‘Hustler Fund’. Now, the new government needs to be clear on two things.
First, whether they will be using banks as intermediaries when providing the ‘hustler funds’. Second, do they plan to reduce local government borrowing and crowd-in private sector in the credit market?
Without the commitment on the latter, the dream of expanding private sector credit market to boost real economic activity with the proposed fund will be a hard nut to crack.
The Uhuru government tried this venture through the credit guarantee scheme but banks still turned away 70 percent of loan applications because they had little incentive to take the risk of lending to small and medium-sized businesses.
Second, the government will be lifting the regulatory policy by the Central Bank of Kenya (CBK) which requires businesses and individuals transacting more than Sh1 million to declare to their bankers. In October last year, former President Uhuru Kenyatta announced the lifting of this policy, but the CBK didn’t implement the order.
The issue about this policy is that its web is strong enough to catch the weak but too weak to catch the strong. Media headlines are awash with politically exposed persons reported to have cash of much higher value than Sh1 million in their homes.
For example, in June this year the Treasury Chief Administrative Secretary allegedly lost Sh1 million in cash he kept at home. So, there is need for a review of this policy. It is simply not working as expected and is punishing legitimate business owners.
Third, the new government intends to review the credit reference reporting system. The current system of reporting disenfranchises the financial consumer.
Ideally, the CRB reporting should help creditors understand the creditworthiness of the consumers but instead, they use it to deny credit. Banks are notorious for giving or denying credit by simply checking if one is blacklisted or not.
So, we need to have a comprehensive review of the current credit reference reporting system and its application.
Fourth, the new government intends to unlock capital tied in pending bills through securitization of the pending bills. The government notes that it is cash-strapped to be able to settle the more than Sh.500 billion worth of pending bills and so it proposes to convert these bills into a market security, simply a government bond.
So, it will be moving this amount from the current liabilities of relevant govt bodies that were supposed to settle the payments to the public debt balance sheet. For traders, this means one can sell over the counter their security and recover their cash without government spending money, and at the same time improving liquidity of these businesses.



Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.