Why Kenyan banks want rate cap law scrapped

janet ndila

March 23, 2017 8:50 AM

Kenyan banks now want the government to scrap interest rate controls on grounds that it has reduced

File Image of Central Bank of Kenya

Kenyan banks now want the government to scrap interest rate controls on grounds that it has reduced credit to private sector and failed to increase savings.

According to the Kenya Bankers Association (KBA), the new law had made it difficult for banks to lend even though it had not affected the saving and borrowing patterns.

“The solution is not to tweak the law, but to remove it and consider some proposals to make credit accessible. We know these problems and we are trying to address them,” KBA Chief Executive Habil Olaka said on Wednesday.

The lenders conducted a survey between January and February to prove their allegations stating that people had a difficult time to access loans.

“There is mounting evidence the interest rate cap introduced in September 2016 dampened growth in quarter four and at the start of this year,” a member of the association added.

President Uhuru Kenyatta introduced caps on lending rates in August in a bid to fulfil a campaign pledge he made before coming to power in 2013 that he would lower the cost of loans.

In January 2017, the International Monetary Fund (IMF) asked the Treasury to remove bank interest rate caps stating that it posed a risk to financial stability in the country.

“The macroeconomic outlook is overall positive, including robust growth and reduced external imbalances. However, interest rate controls are likely to reduce access to credit, weighing on growth,” the IMF said in a statement.

The banks have been urging the government to make changes to the law since its implementation in 2016.

janet ndila