This archive report was first published on 18 September 2019.
On September 18, 2019, a parliamentary committee in Kenya rejected the finance ministry's request to scrap commercial lending rate caps. The Finance and National Planning Committee instead recommended that the law placing caps be rewritten to give it more clarity.
The finance ministry had asked for the cap to be scrapped while presenting the 2019/20 fiscal budget. The cap on interest rates was introduced in 2016 by politicians concerned about high rates charged by banks.
However, banks argue that the move has caused them to cut back on loans to high-risk groups. In March 2019, the High Court ruled that the law setting limits on interest rates charged on loans by banks is unconstitutional, but suspended the implementation for one year to allow the regulator to put in place appropriate mechanisms.
The court found that the responsibility of the Central Bank of Kenya (CBK) in setting and publishing the central bank rate is a function of formulating monetary policy, but the petitioner did not demonstrate that the section relating to interest rate capping falls within the purview of monetary policy.
The judges found the provisions of sections 33 b (1) and (2) of the banking act to be vague, imprecise and ambiguous.
