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Give Reasons why long term loans are difficult to raise on Kenya’s financial markets/ limitations of using long-term debts

Give Reasons why long term loans are difficult to raise on Kenya’s financial markets/ limitations of using long-term debts.

Answers

Lydia
Reasons why long term loans are difficult to raise on Kenya’s financial markets/ limitations of using long-term debts.

1. This finance calls for long-term securities such as land and buildings which most businesses in Kenya may not have.

2. There are no long –term savings to back-up these loans due to low income of average Kenyans and as much most of the savings are short-term and cannot be made available on long-term basis.

3. Most business in Kenya are agro-based and these are risky and as such lenders cannot avail their finance to such businesses of long-term.

4. The central bank has tended to stimulate the development of money markets that capital markets which have not been fully developed to avail such finance to meet the development needs of industry and commercial sectors of the economy.

5. Long-term loans are not usually profitable because interest and principal repayment are eroded by the by the impact of inflation and thus banks may be reluctant to give such.

6. The size of the businesses in Kenya is small and such businesses are not going concerns so as to be able to attract this finance on long term basis.

7. A number of companies in Kenya are multinational companies which obtain long-term finances from parent companies abroad and this has limited the development of capital markets in Kenya as demand by such companies is low.

lydiajane74 answered the question on May 9, 2018 at 19:45

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