President Uhuru Kenyatta signing bill capping interest rates by banks.
BY THOMAS KARIUKI.
President Uhuru Kenyatta has signed the bill capping interest rates by banks succeeding where two other attempts failed.
According to a statement by the President, the new law will now be implemented noting the difficulties Kenyans have had to go through at the hands of banks.
Since receiving this Bill, he said, 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. These frustrations are centered around the cost of credit and the applicable interest rates on their hard–earned deposits.
President Kenyatta said that 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.
Opposition leader Raila Odinga and trade unions also urged President Kenyatta to sign into law the Bill seeking to regulate interest rates.
The Bill provides that banks cap their interest on loans at no more than four per cent of Central Bank of Kenya base rates.
Signing this Bill meets one of the backbones of the pre-election pledges by UHURUTO.
However, bankers had petitioned the President to reject the proposed law and let market forces determine interest rates.
The Banking Act (Amendment) Bill 2015 was sponsored by Kiambu Town MP Jude Njomo, saying high interest rates have curtailed growth of local businesses and led to exit of investors to neighbouring countries that have more favourable lending rates.
The head of state said that banks have failed to live up to their promises and interest rates have continued to increase along with the spreads between the deposit and lending rates.
“We will closely monitor these difficulties, particularly as they relate to the most vulnerable segments of our population. Whilst doing so, my Government will also accelerate other reform measures necessary to reduce the cost of credit and thereby create the opportunities that will move our economy to greater prosperity,” the president said.
On July 28, 2016, the National Assembly passed the Banking (Amendment) Bill, 2015.
The Bill intended 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.
It was the third time that the National Assembly was 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 these caps.
Upon weighing carefully all these considerations, on balance, President Kenyatta said “I have assented to the Bill as presented to me. 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.
