Kenya Bankers Association CEO Habil Olaka. [Photo/businessdailyafrica.co.ke].
Micro, Small and Medium sized enterprises are going to be hit hard with strict policies towards loan as the International Financial reporting Standard (IFRS) 9 is to be implemented beginning January 2018.
The new accounting standard requires that among other things that lenders (banks) immediately start setting aside cash for the loans they advance to risky borrowers, this is different as currently, banks start setting aside cash when a borrower defaults to pay.
In an interview with the Business Daily, Kenya Bankers Association Chief Executive Officer Habil Olaka said that the new standard will affect the vulnerable sectors and said even though they can change the local Interest Rate Cap they cannot do anything about IFRS 9.
“Our view is that it will affect the same sectors that are vulnerable (to the rate cap) and whereas the interest capping Law is within our control as we can do something about the law, IFRS 9 is a global practice,” Olaka said.
He said that as a borrower you have to start booking for the loan provision much earlier thus discouraging many loan takers.
“For high risk borrowers, you are bound to book that provision much earlier at the point of inception rather than when default occurs. This means if you cannot adjust in the pricing of the loan because of the cap law, then it means you are stuck and you will possibly shy away from the loan.”