Kenyan fashion retailer Deacons has borrowed over $12.5 million at 21% interest rate, a much higher cost than the maximum allowed for ordinary bank loans, which are capped at 14% by Kenyan authorities.

As explained by Deacons representatives, the retailer managed to do so by issuing debentures – debt issued by a company and secured against its assets – to the NIC Bank and the Bank of Africa (BOA). In total, Deacons issued debentures to the value of $15.2 million with rates between 15% and 21%. The NIC Bank holds an all assets debenture corresponding to the bulk of the debt and charged an interest rate of 21%, while the BOA is responsible for the remaining of the total borrowed by Deacons – approximately $2 million -, at a rate of 15%.

The use of debentures instead of normal debt allowed the retailer to dramatically increase its debt in a short period of time. In less than six months, Deacons more than tripled its debt from $4.5 million to $14.4 million. The high interest rates under which the loans were agreed to suggests that the retailer might be feeling some economic pressure.

This is not surprising taking into account the strains under which the whole Kenyan retail sector has been recently with giant players having to restructure the business to face the financial challenges. After Uchumi, the government is said to be considering a bailout of Nakumatt in fear of the potential systemic effects the demise of the retail giant could have.

Deacons has stores not only in Kenya but also two outlets outside the country, in Uganda and Rwanda.