Yes, but probably in a positive way.

If you have missed the recent news, the Central Bank of Kenya (CBK) increased its key lending rate by a shocking 11.75% in only 3 months. Besides granting Njuguna Ndung’u the title of Africa’s least effective central bank governor, this move will force local financial institutions like Equity Bank, Cooperative Bank or Family Bank to increase interest rates on loans from around 19% to 25%. The SME sector will be badly hit by the new rates.

Though, microfinance institutions might gain a competitive advantage in this adverse scenario.

The MFIs—which are generally funded through concessionary loans from international development institutions— have been spared the high cost of funds that banks have suffered following successive interest rate increases by the Central Bank of Kenya.

This has enabled the MFIs to hold their lending rates at just below 20 per cent, affording their customers lower cost of loans than what the commercial banks are charging.

This situation might bring some fresh air to the Kenyan MFI industry over the short term. Though, my opinion is that the CBK lending rates will decrease over the next few months as inflationary pressures ease down. Furthermore, although MFIs interest rate might be temporarily lower than commercial banks, they are still high in absolute terms for the profits made by informal sector businesses, which are decreasing because of high inflation.

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