Connect with us

Hi, what are you looking for?

Capital Business
Capital Business

Finance

Bankers call for removal of interest rate caps

lenders are trading asset quality to portability that is tolerance of lower returns on government papers instead, says KBA CEO Habil Olaka

NAIROBI, Kenya, Oct 19 – Kenya Bankers Association is calling for the removal of interest rate capping, a year after it was passed into law.

KBA CEO Habil Olaka says the law has had adverse effects on the economy despite its good intentions.

Olaka said that the law, which was expected to provide low-cost credit and ultimately increase credit uptake has done the opposite as it has instead affected credit growth and discouraged financial inclusion. It was also expected to encourage a savings culture through increased deposits.

It was also expected to encourage a savings culture through increased deposits.

KBA, however, says that deposits – demand and fixed – have shown little evidence of being responsive to the intentions of the law.

At the same time, credit has been skewed towards secure and short-term market end, mainly away from household loans, and has shown a bias towards trade than investment loans.

“It is increasingly becoming evident that the expectations of the law are not being met. For instance, lenders are trading asset quality to portability that is tolerance of lower returns on government papers instead of lending to private sector even at the level of the cap. This is because crowding out is increasingly becoming prevalent,” Olaka said.

In June 2017, for instance, while about 3.2 million loan applications were made, only about 1.1 million of loans were
disbursed, a 34 per cent success rate.

Jared Osoro, Director of Research and Policy at KBA added that the overall economy is hurting as a result of a worsened economic performance due to the undeniable link between credit to the private sector and output growth.

The cap was introduced at a time when credit growth was already declining, further exacerbating the credit squeeze.

Advertisement. Scroll to continue reading.

To adjust, the market has had a loan application in household loans, trade, manufacturing, finance, building and construction, real estate and transport and communication, accounting for about 81 percent of gross loans.

Click to comment
Advertisement

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Headlines

NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Kenya

NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...

Coronavirus

NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...

Coronavirus

NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...

Headlines

NAIROBI, Kenya, Mar 16 – The World Bank has given the Kenyan government USD 60 Million (Sh6.1 billion) to help combat the deadly coronavirus pandemic...