Treasury faces hard task to scrap interest rate cap law
4 months ago, 20 June 00:07
Treasury’s bid to do away with the law controlling interest rates faces a major hurdle, with some MPs saying they will not pass the proposal.
This came even as Treasury said it has aggressively been lobbying legislators to accept the repeal of Section 33B of the Banking (Amendment) Act, 2016, which places a ceiling on the rate of interest lenders can charge on a loan.
The law stipulates that commercial banks can only lend at four percentage points above the Central Bank Rate (CBR), which currently stands at 9.5 per cent.
This means that all loans being offered by commercial banks and other financial institutions regulated by Central Bank of Kenya have a maximum interest rate of 13.5 per cent.
In the Budget Statement last Thursday, Cabinet Secretary Henry Rotich proposed repealing of the section that introduced capping of interest rates.
However, a section of MPs has already started forming a brick wall, promising to shoot down the proposal in what they say is their duty to act in the interest of common folk.
“I’m pretty sure this (the amendment) is something that is not going to sail through,” said Jude Njomo as quoted in a report by Reuters.
Mr Njomo, the Kiambu Town MP, sponsored the Banking (Amendment) Bill in 2016. It passed through Parliament and was signed into law by the President in September 2016.
“The Executive has brought the proposal. But we also have a responsibility, like people’s watchmen, like people’s representatives to speak on behalf of the people... our people would not like the interest rate cap to be removed,” added Njomo.
National Assembly Leader of Majority Aden Duale in April said he would oppose any move to do away with the rate cap, noting that Parliament had passed the law for the good of Kenyans.
However, Treasury is also said to be spending sleepless nights lobbying MPs to amend the law, citing the decline of credit to the private sector. Mr Rotich is said to have met legislators, including Njomo.
The CS said returning to the earlier regime where banks had a free hand to determine lending rates would result to increasing credit access to local firms, which have been starved of loans as banks opt to lend to Government through Treasury Bonds.
Banks have refused to lend to individuals and households at lower rates, saying the risk does not match the returns.
“This is to enable banks and other lenders to provide more credit especially to borrowers they consider riskier,” said Rotich on Thursday.
He reiterated his stand yesterday, where he said the rate caps were a hurdle for economic growth and that the country should either get rid of the capping regime or forget about growth, including the Big Four agenda.
He added that Kenyans should look for other options to bringing down the cost of credit.
“The economic agenda that is before us requires that we have a private sector that is active and an economy that is able to lend because we are going ...
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