This archive report was first published on 20 October 2019.
On October 20, 2019, the Standard published an article highlighting the concerns surrounding the removal of the interest rate cap in Kenya. The article argued that the cap, which was introduced in 2016, had been a crucial tool in protecting the poor from exorbitant interest rates charged by commercial banks.
According to the article, prior to the introduction of the rates cap, the average bank lending rate was 18 per cent, compared to a 91-day Treasury Bill rate of nine percent. Some banks, however, charged as much as 25-30 per cent. In contrast, the average return on savings was about two per cent.
The article cited the example of a hawker who deposited Sh1,000 into a savings account and earned about Sh20 after one year. If the same hawker were to borrow the same Sh1,000 for one year, she would have to pay a Kenyan bank about Sh250 in simple interest. This, the article argued, was an unsustainable business model that benefited only the bankers and economists.
However, the article noted that the removal of the interest rate cap had been met with resistance from the government and the banking sector. The Central Bank of Kenya reported that commercial banks' profit before tax for the first four months of 2019 grew by 15 per cent to Sh56.8 billion compared to last year.
The article concluded that the removal of the interest rate cap would only benefit the wealthy at the expense of the poor. It argued that the government should reduce its appetite for domestic borrowing and upscale the fight against corruption, which was estimated to rob the country of upwards of 30 per cent of government revenues.
