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Interest rates: Why this time will be different



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The battle for affordable credit went into high gear with the introduction of interest rate caps on September 14, 2016.

This followed long-standing concerns about the high interest rates charged by commercial banks, their poor customer service and perceived insensitivity.

Three years later, the caps have been repealed and the verdict is clear: there are winners and losers. Those who had borrowed at high rates (above CBR+4 per cent) had a bonanza.

However, for the majority of potential borrowers and the most vulnerable, bank credit was unavailable.

Micro, small and medium enterprises (MSMEs) were shut out and had to contend with shylocks at highly unfavourable terms. Certainly, this did not engender shared prosperity among Kenyans.

But the lingering question is whether banks will revert to their old ways or strive to build a banking sector that works for and with all Kenyans.


The Central Bank of Kenya (CBK) has set the pace by defining a clear vision of a banking sector that is responsible, disciplined and aligned to customers’ needs.

Four pillars underpin this vision: risk-based credit pricing, transparency, customer centricity and entrenching an ethical culture in banks.

Loans should be priced responsibly, based on the customer’s risk profile and all positive and negative information from credit reference bureaus (CRBs).

The credit information-sharing (CIS) mechanism has recently been improved and is being enhanced.

Banks need to fully and widely disclose the pricing of their products.

After the Cost of Credit website and a mobile app that enable customers to “window-shop” for personal loans and mortgages were launched in 2017, there is a need to incorporate more products and improve the overall customer experience.

The banks need to be aligned to the needs of their customers, including tailoring products that best serve the latter’s needs and resolving swiftly their complaints.

Customers have perceived the high profitability of banks as exploitative given the high cost of credit, and banks should place greater emphasis on longer-term environmental, social and governance issues.

The CBK has compelled banks to review their business models and has, over the past three years, impressed on bank shareholders to accept lower return that takes into account the long-term needs of their customers and the economy.

In February, CBK issued the Kenya Banking Sector Charter to entrench this vision in the banks.

The charter represents a commitment from banks to entrench a responsible and disciplined banking sector, cognisant of, and responsive to, the needs of their customers.

By the end of May, all the banks had submitted to CBK their time-bound plans, approved by their boards, to comply with the charter. The CBK is monitoring the implementation of the charter.

Recently, the CBK secured commitments from the banks that they will act responsibly, particularly on the pricing of credit post-rate caps.

They have no choice but to work for and with Kenyans. With the clear vision that is operationalised in the Banking Sector Charter, this time it will be different.

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