This archive report was first published on 11 September 2019.
Published on September 11, 2019, a proposal by National Treasury to repeal the interest rate capping law has been rejected by members of the National Assembly Finance and National Planning Committee.
The committee argued that repealing the law would subject Kenyans to expensive credit at the expense of lenders, who would reap abnormal profits and have them repatriated to their mother countries.
Speaking during a meeting with acting Treasury Cabinet Secretary Ukur Yattani and officers from Kenya Revenue Authority (KRA), MPs expressed their opposition to the move, citing the negative impact it would have on SMEs and Kenyans.
CS Yattani argued that the capping of interest rates had denied SMEs loan facilities as banks prefer lending to the government due to its lower risk.
“The noble move of capping the interest rates has not worked. The controls have had serious effects on the credit to the SMEs, a concern for policymakers as it has curtailed borrowing,” Ukur noted.
However, MPs disagreed, stating that the removal of interest caps would only benefit a few shareholders and encourage capital flight.
MP Samuel Atandi urged the government to stop borrowing from local commercial banks, arguing that this was to blame for the high cost of credit to SMEs.
The Banking Act was amended in 2016 to introduce the interest rate caps limiting borrowing rates to four percent above the Central Bank of Kenya’s (CBK) rate.
