Treasury plans repeal of interest rate cap law

Treasury CS Henry Rotich CBK Governor Dr Patrick Njoroge with the Treasury budget team //Photo ...
Treasury CS Henry Rotich CBK Governor Dr Patrick Njoroge with the Treasury budget team //Photo Courtesy

After months of talk, the government has finally tabled its proposal to repeal the law capping interest rates in the country.

This after a consensus by the Treasury, the Central Bank of Kenya (CBK) and commercial banks over the failure of the law to spur lending to the private sector.

Speaking during the presentation of the 2018/19 budget, Treasury Cabinet Secretary Henry Rotich said plans were in motion to overhaul the lending ecosystem to encourage innovative solutions to avail credit.

Mr Rotich said the initiatives would create a fair, transparent, competitive, efficient and accessible credit market to serve the needs of borrowers.

“I propose to amend the Banking (Amendment) Act, 2016 by repealing section 33B of the said Act. This is to enable banks and other lenders to provide more credit especially to borrowers they consider riskier,” Mr Rotich said.

The law sets the maximum lending rate at no more than 4 per cent above the CBK’s base rate, which currently stands at 9.5 percent.

Against popular expectation, President Uhuru Kenyatta assented to the law in August 2016, at that time arguing there was a need to make banks more responsive to the concerns of expensive credit from borrowers.

A study by the Central Bank revealed that the law had failed to achieve its intended objective of increasing credit access to small and medium enterprises by limiting the cost of borrowing for businesses and individuals.

To cushion borrows, Treasury has proposed the setting up of the National Credit Guarantee Scheme (NCGS) as a policy tool to direct credit to micro small and medium enterprises.

“The Credit Guarantee Scheme will work through easing the financial constraints of MSMEs and start-ups by enabling them to access capital,” he said.

The government will also be merging a number of its lending institutions to create stronger lenders to avail credit to SMEs.

Cabinet has already approved the creation of the Biashara Kenya Fund by merging Uwezo Fund, Youth Enterprise Development Fund and Women Enterprise Development Fund.

The Treasury will also be tabling the Financial Markets Conduct Bill which among other things will seek to regulate fees, commissions and interest rates set by banks.

Through the bill, the government will also be seeking to deal with the rise in predatory lending in the country, by ensuring only borrowers with the ability to repay get access to instant mobile loans.

“We have developed a Financial Markets Conduct Bill, 2018 that comprehensively addresses these issues and does away with piecemeal and fragmented legislation on consumer credit,” he said.

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