This archive report was first published on 7 November 2019.
November 7, 2019, marked a significant shift in Kenya's banking sector as parliament adopted the president's recommendation to scrap the interest rates cap law.
The law, which came into force three years ago, had imposed a 20% interest rate cap, a move that banking industry leaders claim has led to a credit squeeze and slowed lending to small businesses.
According to KCB Group's CEO Joshua Oigara, who is also the Chairman of the Kenya Bankers Association, the removal of the rate cap law is a welcome development.
“The regime of the 20% interest rate is long gone. The macroeconomic and business environment where we are today does not at all support an environment of high rates,” Oigara said.
He added that allowing banks to price the risk of borrowers is essential, and the banking industry has over the last two years learned a number of lessons in this regard.
“As an industry, we are in a new equilibrium. Banks have reached a new business model. We lend to current customers at 13% because we have accepted their risk profile as an industry. That will not change the next day. So the fear that there will be a massive repricing the next day is not true,” Oigara said.
However, the removal of the rate cap law has also been welcomed by Savings and Credit Co-operative Societies (SACCOs), especially those engaged in the deposit-taking business.
“The rate cap law had the effect of pushing our members towards the banks. But now this movement is likely to be reversed especially as SACCOs with deeper pockets buy back more expensive bank loans from their members,” said Moses Chebor, CEO of Boresha Sacco Society Limited.
