The President of the African Development Bank (AfDB) Mr Akinwumi Adesina has told banks to seek to understand the risk profiles of small businesses instead of shunning them.
Mr Adesina who’s is attending the sixth Tokyo International Conference on African Development (TICAD VI) Summit in Nairobi, said SME risk is more of perceived than real and that banks should do more to determine the real risk.
President Uhuru Kenyatta Tuesday signed a Bill capping interest rates at 4 per cent above the central bank rate.
“I think the risk that the private sector talks about agriculture and SMEs in my view is perceived risk not necessarily real risk so they need to understand private sector better, they need to have their front and back office structure to be able to price loans appropriately given the risk that are involved,” Mr Adesina said.
The AfDB President also spoke of the need for a bigger role in credit information sharing.
Mr Adesina said that banks across Africa have been unfairly pricing loans which has slowed down development.
“I think it is not possible to grow the private sector when you have rates that are going to 28 per cent, 30 per cent,” he said.
“At the end of the day we have to worry about the developmental impact of expensive credit, in a number of countries you find that the gap between the monetary policy rate and the rate at which they lend to the SMEs is quite wide which makes financing unaffordable for many of the businesses and quite frankly a number of the banks make a lot of money from it while not lending enough to the private sector,” he said.
