Local firms have increasingly turned to debt financing to support their operations, particularly due to high inflation rates affecting crucial supplies.
Despite concerns about the costs associated with higher interest rates, borrowing for purchasing inputs has remained robust in the private sector over the past year.
According to the Central Bank of Kenya (CBK), the demand for credit has been driven significantly by the need for working capital, particularly for acquiring raw materials.
The CBK’s analysis indicates a sustained strength in credit to the private sector during the latter half of 2023, with a growth rate of 13.9% from December 2022 to December 2023, compared to 12.2% from June 2022 to June 2023. This growth is partly attributed to the necessity for short-term working capital, fueled by escalating input costs.
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Businesses have grappled with mounting input expenses surpassing available cash flows over the past year, attributed to various factors including the depreciation of the shilling, increased fuel prices, and the introduction of new taxes such as the 17.5% levy on clinker imports for export and investment promotion.
The Kenya Association of Manufacturers (KAM) underscores the vital role of borrowing for input purchases in sustaining businesses amidst challenges such as weakened consumer purchasing power and declining productivity.
Anthony Mwangi, CEO of KAM, stresses that borrowing has become indispensable for maintaining operations, as failure to do so could result in the drastic measure of shutting down operations.
