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Kenya’s 4.4% rise in diesel prices between September and October can leave businesses with less money to grow, even though bank loans have become cheaper. The Central Bank of Kenya (CBK) began cutting its benchmark interest rate in August 2024, which has helped lower borrowing costs, but a business also needs enough sales income to pay for supplies and fuel before it can add machines, branches or jobs. David Precious, Senior Market Analyst, said, “A lower loan rate makes a new machine cheaper to finance, but a factory has to pay for materials and fuel before it can put that machine to work.
Those costs come out of sales income first, so when diesel and supplies become more expensive, the interest saved may go on paying for them instead of equipment. The pressure can be greater for businesses that cannot raise their selling prices because customers are buying less or competitors are holding prices down.” Banks Charge Less, but Fuel Costs More Commercial banks’ average lending rate fell from 16.84% in July 2024 to 14.4% in September 2026, a cut of 2.44 percentage points. Banks price each loan using factors that include their own costs and the borrower’s risk, according to the CBK, so the rate on an individual loan can differ from the average.
Fuel moved the other way, with the Kenya National Bureau of Statistics (KNBS) putting average diesel prices at 228.77 Kenyan shillings (KES) a litre in October, up from KES 219.04 in September. The CBK links the October pump-price increase to higher international oil prices . Lower rates have reached businesses unevenly: in the CBK September survey, 35.8% of surveyed businesses reported no change in their loan interest rates since August 2024.
For these businesses, the diesel increase comes with no lower interest bill to offset it, and unless they earn more from sales or cut other costs, less money may remain for equipment or hiring. More Manufacturers Report Higher Costs Than Higher Prices In the CBK September business survey, 70.6% of manufacturers reported higher purchase prices in July to September than in April to June, while 23.5% reported higher selling prices. This gap suggests that many producers are paying more for inputs without earning more from each product.
Weak demand may be limiting how much they can charge: in the CBK September survey, 30.4% of surveyed businesses reported lower demand in July to September than in April to June, and the survey also named competition and weak demand as reasons businesses limited selling-price increases. Where customers are already buying less, a higher price may cut orders further. A manufacturer that pays more for materials and holds its price earns less on each product unless it cuts other production costs.
Selling more could make up the difference, but weaker demand may make that harder. A lower loan rate trims the interest bill, though the pressure on earnings remains. Rising Supply Costs Can Leave Less Money for New Equipment Businesses often use money they have earned to keep operating: in the CBK September survey, 53% of surveyed businesses cited their own resources, including earnings kept within the business, as their main financing source.
This cash carries no repayment, but once it has paid for supplies it is no longer available for equipment. Borrowing shows a similar pattern: in the CBK credit survey, Kenyan banks attributed increased demand for trade-sector loans in April to June 2026 mainly to money needed for everyday operations. Such loans can help shops buy goods for existing customers without paying for another outlet.
If suppliers raise their prices, a shop may need a larger loan just to stock the quantity it already sells. The lower interest rate makes that loan cheaper, but the shop has no extra goods to sell, so it must recover the higher purchase cost from customers or accept a smaller profit. So, a rise in lending to trade businesses may reflect more expensive stock as much as expansion.
Year-End Sales May Have to Cover Rising Costs Some relief could come from sales, with 55.2% of surveyed businesses expecting them to increase in October to December . But 62% expected their selling prices to stay unchanged, so businesses facing higher supply costs may need to sell more or cut other expenses to improve profits. Extra orders can also put cash under pressure before customers pay.
Banks expected seasonal stock purchases and everyday operating needs to support borrowing in October and November, and a factory that buys materials upfront may need a larger loan to complete more orders, even at a lower interest rate. The additional sales may eventually improve its finances, but the money from them must first cover production costs and repayments.
Source: Financial Fortune Media
