End of cheap loans as Uhuru Okays scraping of Interest rate by September
4 months ago, 9 Mar 00:11
You may soon receive a notice indicating that the cost of servicing your loan has gone up, in case you borrowed money from a commercial bank. The same hand President Uhuru Kenyatta used in August 2016 to take away banks’ freedom to charge customers’ the interest rates they wanted could soon hand the power back to the lenders. Cheap credit is likely to end in September after President Kenyatta reportedly yielded to pressure from the International Monetary Fund (IMF) to either repeal or replace the law that controls interest rates. The caps were introduced in 2016 in the wake of a public outcry over high interest charges by banks that burdened borrowers. Banks are not allowed to charge customers a rate higher than four per cent above the benchmark rate set by the Monetary Policy Committee. The benchmark rate has stayed at 10 per cent since September 2016, meaning banks cannot charge customers above 14 per cent. Should the cap be removed, banks will have the power to decide the rate to charge customers. This could mean that the old regime that saw rates go as high as 25 per cent could be back. The details of the changes are contained in the IMF’s status review on Kenya following a recent visit by top officials of the Washington-based institution. The decision that will no doubt hit borrowers hard follows high-level discussions led by President Kenyatta and senior Treasury and Central Bank of Kenya officials. During the meetings, IMF was understood to have demanded that the interest rate cap be scrapped for Kenya to continue accessing its critical funding. The closed-door meetings, which also involved key parliamentarians to lobby the review of the rate cap, reportedly saw Kenya request a six-month grace period to address the tough conditions by IMF, including austerity measures to contain run-away Government spending. "The authorities requested a six-month extension of the IMF's standby arrangement (SBA) that expires on March 13, 2018 to allow more time to complete the outstanding reviews of the IMF-supported programme," read an end-of-mission statement by the IMF team that was in Kenya to review the country's status. It added: "In support of this request, the authorities have committed to policies to achieve the programme objectives, including reducing the fiscal deficit and substantially modifying interest controls." Kenyan borrowers were getting used to credit during the period of low interest rates to pay for basic living costs. This latest shift could expose them to financial difficulty once the rates rise. During the short stint under the regime of interest rate cap, banks' power to decide the cost of loans was significantly weakened. According to the IMF team, discussions on the details of the policies would continue in the coming weeks and would be completed by September 2018. Some of the Government officials who met the IMF delegation include Treasury Cabinet Secretary Henry Rotich, CBK Governor Patrick Njoroge, and the principal secretary for the National Treasury, Kamau Thugge. The team also met the Deputy Governor ...
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