Africa's borrowing costs fall as banks cut interest rates

The cost of borrowing for businesses and consumers across Africa continues to fall as banks cut interest rates on loans.

Governments across the continent are hoping cheaper lending rates will encourage more businesses to take out a loan to invest in rebuilding after the pandemic.

In Kenya the banks have cut the cost of credit to all time lows, taking their cue from reductions in the benchmark rate set by the Central Bank of Kenya, which says lending rates have fallen below 12%, their lowest since 1991.

But breathing new life into the economy, after business activity stalled during lockdown, is being hampered by banks being cautious about lending, after many companies in financial difficulties asked for repayments to be suspended.

Loan defaults in Kenya have risen to a 13-year high, as industries have scaled back amid the pandemic, cutting jobs or putting staff on unpaid leave.

Data from the Central Bank of Kenya shows credit to the private sector expanded more than 7% in the year to June, half the ideal rate for the economy.

Governments hope lower interest rates will encourage businesses to borrow for new investment, but the Kenya Bankers Association has warned companies trying to survive will not take out a loan, just because it is cheaper.

Meanwhile in Uganda businesses are being encouraged to lease equipment and pay for it in stages, rather than taking out a big loan to buy assets outright, which would add to their debt burden.

Addad Iraguha, the Head of Asset Finance at Absa Uganda and the President of Uganda Leasing Association, told the BBC "the pandemic has created both opportunities and challenges for the leasing industry".

He says investors should recognise the opportunities created by the growing demand for healthcare products amid the pandemic.