Interest Bill could reverse gains in financial markets, banks warn

 

All eyes are fixed on President Uhuru Kenyatta who is expected to either assent or reject the Banking (Amendment) Bill, 2015 that seeks to put a ceiling on the runaway interest rates.

The Bill which imposes a limit of 4 percent above the Central Bank of Kenya rates has become the latest battle front with commercial banks fighting to maintain the current lending regime which has been accused of being insensitive to borrowers.

The Kenya Bankers Association Chief Executive Officer Habil Olaka said the move to cap the interest rates will force lenders to lock out the lower income group which has been deemed to be too risky.

“The Bill threatens to reverse the gains made in the financial sector. Banks will be constrained in terms of lending, most of the activities will move to the informal markets, the lenders will be doing business with shylocks on the deposit side because the banks cannot pick money they cannot lend, meaning most of the activities will move to the informal sector and KRA is not able to collect revenue from the shylocks hence losing on tax collection.”

Experts are urging Kenyans to look for alternative ways of raising capital other than relying on banks – which they say will push the banks to lower their interest rates.

Anzetse Were, an economist said, “if the Bill is passed it will lead to an increase on inflation from the money released to the economy or the banks will stop lending loans.”

If Mr Kenyatta endorses the Bill, bank lending rates would be capped at 14.5 per cent based on the current CBR of 10.5 per cent.

The Bill, sponsored by Kiambu MP Jude Njomo, proposes that chief executives of commercial banks and other lending institutions face a fine of Sh1 million or imprisonment for a term of not less than one year or both if convicted of flouting the law.

 

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