This archive report was first published on 19 October 2019.
President Uhuru Kenyatta's rejection of the Finance Bill (2019) has set the stage for a collision course between Kenyan lawmakers and the Executive over bank lending rates.
On October 19, 2019, the President refused to assent to the Finance Bill, which MPs had amended to retain lending rates at four percentage points above the prevailing Central Bank Rate (CBR).
Members of parliament now require a two-thirds majority to overturn the President's memorandum when they resume their sessions on October 29 after a 10-day recess.
The rate cap law, introduced in 2016, aimed to cushion borrowers from exorbitant rates charged by lenders, but the High Court ruled in March 2019 that the law was unconstitutional.
Analysts at AIB Capital say the MPs could either amend the Finance Bill and remove the caps, pass the Bill a second time without amendments, or amend the Bill and increase the cap from four percentage points.
According to the Kenya Bankers Association (KBA), the memorandum asking Parliament to support a repeal of the interest rate cap provides for further engagement to make credit more accessible to borrowers, especially micro, small and medium-sized Enterprises (MSMEs).
“Over the past three years, both industry and government policymakers have monitored the impact of the interest rate cap with the majority of stakeholders, concurring that the law was well intentioned but has resulted in unintended consequences,” said Joshua Oigara, the chairman of KBA.
