Kenyan president Uhuru Kenyatta on Wednesday approved a bill capping bank interest rates on loans and deposits in the East African country. He thanked President Uhuru Kenyatta for signing interest rates Bill following his demands.
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Banks have at one point said that with interest rate caps, they would be forced to turn away perceived risky borrowers, locking out millions from the credit market. Kenyatta said it was the third time parliament had tried to reduce interest rates and that banks had twice promised to lower rates, before reneging.
The decision has been met negatively by those in the Kenyan banking industry. The bill, supported by trade unions, also includes a minimum deposit rate set at 70% of the benchmark rate, another measure aimed at helping Kenyan businesses who are struggling with loans of interest rates of about 18%.
The Bill was sponsored by Kiambu Town legislator Jude Njomo who blamed commercial banks for 10 years of empty promises to lower rates.
In previous cases banks had made promises to the government but failed to deliver as interest rates continued increasing.
CBR is the minimum rate CBK charges commercial banks as lender of last resort and is reviewed every two months.
Other more conspiratorial voices have said that Kenyatta is looking towards the upcoming election and his bid to win a second term.
Commercial banks say the government’s insatiable appetite for funds from the domestic market was the main reason their lending rates have remained high.
The presidency noted difficulties the new legislation might present, including “credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms”.
“Despite having one of the most efficient and effective financial markets, Kenya has one of the highest returns-on-equity for banks in the African continent”.
Members of the Consumer Federation of Kenya protest against banks in Nairobi, Kenya, on Wednesday.
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The Bill was passed by Parliament on July 28, 2016, and intends to regulate interest rates that are applicable to banks’ loans and deposits, capping the interest rates that banks can charge on loans and must pay on deposits.
