Kenyan President Uhuru Kenyatta has signed into law the Banking (Amendment) Bill which sets caps on banks’ lending rates, despite appeals from the banks

that it will introduce inefficiencies in the lending sector.

The Bill, passed on July 28, 2016, by the National Assembly, the lower house of the Kenyan Parliament, will regulate interest rates applicable to bank loans and deposits, capping the interest rates that banks can charge on loans and must pay on deposits.

President Kenyatta said in a statement here Wednesday: “Since receiving this Bill, I have consulted widely and it is clear to me from those consultations that Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks.”

The president said the frustrations are centred around the cost of credit and the applicable interest rates on their hard-earned deposits.

This is the third time that the National Assembly is attempting to reduce interest rates to affordable levels. In the previous two instances, dialogue and promises of change prevailed and banks avoided the introduction of caps but the banks failed to live up to their promises and interest rates have continued to rise along with the spreads between the deposit and lending rates.

President Kenyatta said that although Kenya had one of the most efficient and effective financial markets, it had one of the highest returns-on-equity for banks in Africa. He urged banks to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by their customers.

“Banks need to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by their customers,” said the president, noting that upon weighing all considerations carefully, he assented to the Bill becoming law.

“We will implement the new law, noting the difficulties that it would present, which include credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms.”

The government would closely monitor the difficulties, particularly as they relate to the most vulnerable segments of the population and accelerate other reform measures as necessary to reduce the cost of credit and thereby create the opportunities to move the economy to greater prosperity, he added.