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Bankers oppose law seeking to control interest rates

KBA Chief Executive Officer, Habil Olaka said if parliament is successful with this Bill, we will be taking material steps backwards as a democracy

KBA Chief Executive Officer, Habil Olaka said if parliament is successful with this Bill, we will be taking material steps backwards as a democracy

NAIROBI, Kenya, 28th July – The Kenya Bankers Association has expressed its reservations on the amendments of the Banking Act that will cap bank interest rates at four percent above the Central Bank Rate (CBR).

In a statement read by KBA CEO Habel Olaka, the bankers said while the proposed Amendments were introduced with good intentions for the public, the move to regulate cost of loans flies against the tenets of a free market economy.

“At first glance, capping interest rates looks like something that will benefit consumers; however, on the contrary, it will disadvantage the very consumers it seeks to protect,” says Olake.

The bankers see the bill working against Micro, Small and Medium-sized Enterprises who may find it harder to access credit facilities if the bill becomes law.

“Banks will be averse to lending to customers they deem riskier as provision for risk will be reduced. KBA has submitted to the parliamentary Committee on Finance, Planning and Trade a progressive proposal that will boost lending to SMEs,” said Olake.

The bill, sponsored by MP Jude Njomo, was passed by parliament on Wednesday and is now awaiting presidential assent.

The President may stand by Treasury CS Henry Rotich and Central Bank Governor Dr. Patrick Njoroge who are opposed to the Bill based on the argument that banks will focus on lending to blue chip companies, locking out ordinary borrowers.

If, however, the President signs the bill, the interest rates will hover around 14.5 percent, which is 10.5 percent above the current CBR. This is compared to the current average lending rate of 18 percent.

In addition to capping bank interest rates, the bill seeks to hold Bank executives personally liable if they contravene the proposed law. The CEOs risk a fine of Sh1 million or a prison term not less than one year.

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