Uhuru's bid to scrap interest rate cap receives boost after parliament adopts proposed amendment ▷ Kenya News

- Banks will start levying their own desired rates on borrowers once Uhuru signs the Finance Bill 2019 into law

- The President, Treasury and CBK argue that the existing rate cap is hurting the country's economy

- The trio say that lenders are shying away from extending credit to high risk populations with SME's bearing the biggest brunt

- Uhuru told parliament that capping of bank rates had led to mushrooming of shylocks who were taking advantage of borrowers

- A section of MPs opposed to the bill said the bill if signed in to law, will result in a situation where banks levy exploitative interests to borrowers

Borrowers have been left at the mercy of banks after the National Assembly on Tuesday, November 5, adopted President Uhuru Kenyatta's memorandum seeking to scrap interest caps.

The motion, contained in Finance Bill 2019, will see banks slap borrowers with their own desired interest rates after Uhuru accents to it.

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Parliament has adopted President Uhuru Kenyatta's memorandum seeking to scrap interest caps. Photo: UGC.
Source: UGC

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A section of MPs had dismissed the bill that had been introduced in National Assembly for debate, arguing that it will give banks an opportunity to levy exploitative lending rates.

"The committee of the whole house has adopted the proposed amendments to the Finance Bill 2019, as per the President's memorandum seeking to reverse the caps put on interest rates of bank loans," National Assembly said in a tweet.

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In a memo to parliament, the President in October 2019 complained that existing interest cap had resulted in a credit squeeze as banks feared to lend to borrowers who are regarded as high risk.

Uhuru said SME's were among the hardest hit and they had since turned to shylocks who took advantage of their desperate need for loans.

Most commercial banks adjusted their lending business models towards large corporates and the public sector and away from small-scale borrowers and individuals. As a result, credit to segments such as MSMEs, that are perceived as risky, declined after imposition of the controls.

Shylocks and other unregulated lenders have taken advantage of the effects of capping to lend to desperate citizens at exorbitant rates in a predatory manner compounding the already existing problem of lack of access to affordable credit facilities due to prohibitive costs,” Uhuru said.

CBK allows banks to charge borrowers a maximum of 4% above its 9% benchmark rate. Photo: UGC.
Source: UGC

The existing interest cap allows lenders to charge to a maximum of 4% above the 9% benchmark rate set by the Central Bank of Kenya (CBK).

Uhuru's argument is in sync with that of National Treasury and CBK which hold that rate caps are hurting the country's economy.

Earlier, CBK Governor Patrick Njoroge described the state's control of borrowing rates as driving a car with an already engaged handbrake.

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