President Kenyatta assents to Bill capping interest rates

Commercial banks have lost their bid to do away with interest rate controls, after President Uhuru Kenyatta signed the Banking Amendment Bill 2015 into law.

The move effectively limits the interest rates charged by banks to four percent of the Central Bank Rate. With the CBR currently at 10.5 percent, banks cannot charge higher than 14.5 percent as interest on credit.

The signing of the bill into law brings weeks of anxiety to an end with legislators and banks alike throwing arguments and counter arguments as to the pros and cons of interest rate controls.

President Kenyatta noted with concern that despite previous attempts to dialogue and lower interest rates, banks had failed to live up to their promises with interest rates ever rising.

“Upon weighing carefully all these considerations, on balance, 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,”” President Kenyatta said in a statement.

The National Treasury, the Central Bank of Kenya and the banks have all been opposed to the capping of interest rates arguing it would be counterproductive to the economy. Banks have at one point said that with interest rate caps, banks would be forced to turn away perceived risky borrowers, locking out millions from the credit market.

The head of state said the government would closely monitor emerging difficulties especially those considered most vulnerable from credit access.

“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 stressed.

Interest rates have averaged 18 percent in 2016.

The new law also prescribes penalties for bank officials who violate the requirement.