Kenya begins process of scrapping capping of interest rates after close to two years of negative growth

Kenya has officially began the process of scrapping away the banking act that limited interest rates to no more than four per cent above the Central Bank Rate (CBR) after close to two years of negative growth.

The National Treasury is finalizing on a draft that calls for the abolishment or amendment of the interest rates law, blamed for the contraction in the financial services sector, where the industry loan book growth slowed to 3.7% in the first half of 2017.

In the period, interest income declined 13% as the cost of funds reduced 14% as lenders shied away from the private sector, instead choosing to do business with the government leaving consumers high and dry and at the mercy of shylocks.

Cabinet Secretary Henry Rotich said he expects the draft which contains various tools that discourage banks from raising interest rates above the 14 percent ceiling to be tabled in parliament before June.

Speaking during the signing of a 10.3 billion shillings grant by Japanese government for rehabilitation of Olkaria geothermal 1 power plant, Mr Rotich said the interest rate cap law had impacted negatively on the growth of the economy.

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In August 2016, President Uhuru Kenyatta signed the bill into law hoping it would make it easy for Consumers to access cheap loans and in return power the economy but almost one and a half years later, the law continues to cause ripples in the local financial sector.

Private sector credit growth fell to 4.3 per cent in December 2016 compared to more than 17 per cent a year earlier, Central Bank of Kenya data show.

Cytonn on their march 4th report disclosed that the treasury was planning to introduce a Consumer Protection Law to replace the Banking (Amendment) Act 2016.

The moves come after the International Monetary Fund, a critic of the law agreed to extend a standby credit facility to Kenya by six months on condition that Kenya amends the interest rates law and reduce the budget deficit.