This archive report was first published on 4 November 2019.
On September 14, 2016, the Banking (Amendment) Act introduced a rate cap law to protect Kenyans from exploitation and high loan costs. However, banks have found ways to circumvent the law and charge higher interest rates.
According to Mr. Wilfred Onono, managing consultant at the Interest Rate Advisory Centre (IRAC), banks are charging higher interest rates by splitting accounts into capital and arrears accounts. This allows them to charge higher interest rates on the arrears portion.
Some banks have introduced 'non-compliance charges', which are additional charges on outstanding debt. Others charge higher interest rates on overdrafts. For instance, one bank charges an additional 10% above the interest cap on the loan portion in arrears.
CBK Governor Patrick Njoroge supports calls to repeal the law, saying it is unproductive as it has seen commercial banks collude to deny Kenyans and micro, small and medium-sized enterprises (MSMEs) access to credit.
However, some argue that the law is necessary to protect consumers from exploitation. MP Jude Njomo, who introduced the law, argues that any lender that charges more than the prescribed four per cent above the CBK rate is committing an illegality.
On November 4, 2019, a parliamentary committee agreed with President Uhuru Kenyatta that the interest capping law should be repealed. The decision is in line with the President's recommendations in an October 16 memorandum sent to the House, detailing the reasons for his refusal to sign into law the Finance Bill, 2019.
