This archive report was first published on 25 October 2019.
On October 25, 2019, President Uhuru Kenyatta requested that the interest cap rate be removed from the Finance Bill 2019, citing lending challenges to Micro, Small and Medium Enterprises (MSMEs). However, Members of Parliament have vowed to veto this request, citing concerns over the impact on MSMEs.
The Central Bank of Kenya (CBK) has been criticized for prioritizing commercial banks' aversion to absorbing risk over social indicators when advising on government financial policies. This has led to a situation where the remaining 20 percent of lending, distributed between SACCOs, Chamas, microfinance institutions, and welfare organizations, may be where the life of ordinary citizens is centered.
Commercial banks profile customers in sectors and the SME sector is generally considered to be of higher lending risk, resulting in higher interest rates. The gap between the prescribed risk and the real risk increases when the base rate is lowered, making no sense economically.
It is also assumed that the 20 percent of the population locked out by these laws are the ones borrowing from mobile money lenders, who turn over billions of shillings in micro amounts in a short period. This is a clear indication that these borrowers cannot be ignored.
What is interesting is that the government seems to be willing to protect and defend the banking sector's refusal to develop their own policies to manage risk at the expense of the population whose interest should be their primary concern.
