This archive report was first published on 18 October 2019.
President Uhuru Kenyatta has dealt a blow to borrowers by refusing to assent to the Finance Bill 2019, which aimed to cap interest rates on loans. The move is expected to make loans more expensive for Kenyans.
On Thursday, President Kenyatta returned the Bill to Parliament, instructing legislators to remove a section that introduced the capping of interest rates. This decision marks a U-turn from 2016, when the President signed the Banking (Amendment) Bill into law, effectively capping interest rates at not more than 4 per cent above the Central Bank of Kenya (CBK) benchmark rate.
At the time, President Kenyatta expressed his support for borrowers who had been left at the mercy of banks that set interest rates on a whim. However, he has since defended his decision to reject the rate cap, citing its failure to meet expectations.
According to the President, the rate cap had caused unintended effects that were significant and damaging to the economy, particularly the Micro, Small and Medium Enterprises (MSMEs) sector. He also claimed that the rate cap had rendered the CBK ineffective and throttled credit flow to the private sector.
With the current CBK benchmark lending rate standing at 9 per cent, banks have been charging borrowers a maximum of 13 per cent. The latest push to remove the rate cap comes after a persistent campaign by banks, the CBK, the World Bank, and the International Monetary Fund.
