Kenya’s commercial banks have signed a Memorandum of Understanding (MoU) with the Central Bank of Kenya (CBK) to implement measures which will help lower interest rates.

The deal involves banks developing credit scores which will see good borrowers charged lower rates as well as promptly reducing lending rates whenever the Central Bank Rate is lowered.

The signing of the MoU Wednesday came after Parliament passed the Banking Amendment Bill 2015 two weeks ago to cap interest rates on loans at four percentage points above the Central Bank Rate, thus forcing commercial banks to lower their lending rates.

The passage of the Bill seemed to have spurred banks into action which has seen them coming up with their own interventions to reduce rates.

The banks, through the Kenya Bankers Association, had drafted an MoU which they presented to Central Bank Governor Dr. Patrick Njoroge committing all banks to, among other measures, cancelling account closing charges, immediately reducing interest rates in line with last month’s Central Bank Rate reduction and starting a 30 billion shillings (about 296 milion US dollars) fund for low-cost credit to small and medium-size enterprises (SMEs), women and the youth.

Banks are expected to use information from credit reference bureaus to develop credit scores which will see good borrowers being charged lower interest rates. The banks will also enhance financial literacy by, among other measures, re-launching the cost of credit website to enable customers compare bank products and put in place an electronic securities register.

They will also set up of a 100 million shillings technical assistance programme for micro, small and medium-size enterprises.