Kenya’s President Uhuru Kenyatta has less than a week to sign into law a Bill which places a cap on bank interest rates at four percentage points above the benchmark Central Bank Rate.
Kenyan MPs passed the Bill seeking to control interest rates at the end of July and it is now up to President Kenyatta to sign it into law. The Bill also puts the minimum interest rate on deposits at 70 per cent of the Central Bank Rate.
The Kenya Bankers Association, the Cabinet Secretary (Minister) for Finance and the central bank governor have all opposed the law, arguing that it will introduce inefficiencies in the lending sector, but borrowers say it will lead to cheaper loans.
When Catherine Riungu walked into a Kenyan bank and emerged with a home loan, she joined a list of Kenya’s privileged few, privileged because there are only 22,000 mortgage portfolios in the whole of Kenya.
Nothing prepared her for what would happen to her two years into her repayment.
“The interest rate was revised from 15 per cent to 25 per cent, and I was servicing two mortgages at the same time, and when they revised the interest rates, it rose from 100,000 to 150,000 shillings. That is like 50 per cent (hike) without notice, and without being given time to revise my financial arrangements,” says Riungu.
Faced with the reality of what they describe as an exploitative affair between banks operating in Kenya and their clients, Kenyan MPs passed a Bill which caps bank interest rates at four percentage points above the Central Bank Rate.
“The preferred systems is where the market is supposed to determine prices but where you have an imperfect market you are sometimes forced to intervene to get the desired result,” says economic analyst Ndiritu Murithi.
Bankers are, however, urging President Kenyatta not to sign the Bill, arguing that it will hit small borrowers like Catherine the hardest. They also argue that it will lead to inefficiencies in the credit market and promote informal lenders, who will prey on desperate borrowers.
“Informality has got its own challenges and therefore, the rate that you are saying is high in the banking sector, in the informal sector, the shylocks, the loan sharks, it’s even worse,” says Kenyan Bankers Association chief executive Habil Olaka.
Most Kenyans will hear none of it. “This law will protect me from having to deal with crazy interest rates,” says Riungu.
If President Kenyatta signs the bill, lending rates will be capped at about 14.5 per cent based on the current Central Bank Rate of 10.5 per cent, a huge relief for clients currently paying rates of between 18 and 25 per cent.
Source: NAM NEWS NETWORK