KBA classifies 40pc of borrowers as high risk

The Kenya Bankers Association (KBA) estimates that 40 percent personal loan borrowers are considered moderate, high and very high risk clients who would not benefit from interest rate caps.

According to the banking lobby group, the borrowers account for over Sh18 billion worth of personal loans to the banks which would become harder to access.

KBA has maintained that the cap on interest rates would squeeze out such borrowers forcing them to take up loans from micro financiers and shylocks who operate in unregulated interest rate markets.

“The immediate impact is more than Sh18 billion worth of personal loan applications of value Sh200,000 and below. This bill will therefore transfer such lending from banks to micro finance institutions, informal lenders and shylocks which charge substantially higher and unregulated interest,” KBA said in a notice in the dailies.

Economists have however faulted this notion from the banks, adding they are being insincere in their quest to veto the signing of the bill into law.

Institute of Economic Affairs Chief Executive Officer Kwame Owino said banks only present a united front of lowering interest rates when faced with the possibility of controlling interest rates.

“Over the last 16 or so years Kenyans main concern for Kenyans has been interest rates and somehow the question of sincerity on the part of the association of banks about how to actually to bring down interest rates has often something they have kicked to the future,” Mr Owino said.

KBA wants the bill sent back to parliament to ensure banks are able to dialogue on a sustainable method to lower interest rates.

However Mr Owino said that banks only call for structured engagement over high interest rates whenever there is a threat of interest rate controls via legislation.