By Billy Mijungu
The growth of the private sector is primarily driven by access to financial resources. This sector, spanning micro, small, medium, and large enterprises, holds immense potential for economic expansion but only if financial inclusion becomes a lived reality for all.
Recently, the Central Bank’s Monetary Policy Committee attempted to ease access to credit by lowering the Central Bank Rate (CBR) by 75 basis points to 10 percent. However, this move is merely a drop in the ocean. The impact has been negligible, with only a 0.2 percent contribution to GDP growth.
It is now evident that the slowdown in private sector growth is dragging the entire economy, with growth rates falling below the inflation rate, currently at 3.6 percent. Clearly, something is wrong.
At the heart of this problem are the lending practices of commercial banks. These institutions have increasingly turned their focus toward lending to the Government of Kenya, neglecting the private sector. This crowding out effect has made credit both expensive and inaccessible to entrepreneurs and businesses. With the national debt now standing at KES 5.8 trillion, the government’s appetite for local borrowing shows no sign of slowing down.
In effect, the government is competing with the private sector for the same pool of funds. Given that lending to the state is low risk and effortless, banks naturally gravitate toward it. The result The banks are thriving while enterprises are starved of capital.
This is why the economy is struggling even as banks remain flush with cash, marketing their money market funds and earning consistent returns from government securities. To spur genuine enterprise and economic growth, we must retire domestic debt and reallocate capital toward the private sector.
Another critical issue is foreign exchange policy. It is puzzling that the Kenyan shilling has stagnated around 129 to the dollar, despite a near doubling of foreign exchange reserves in the past year. A stronger shilling would reduce debt servicing costs, attract foreign direct investment (FDI), and make credit more affordable. That these benefits have not materialized points to a policy failure.
If we are serious about exponential economic growth and job creation, we must prioritize private sector empowerment. This requires reforms in monetary policy, banking practices, and debt management.
