Kenyan MPs are pushing a law through Parliament aimed at capping commercial banks' lending rates at 4 percentage points above the Central Bank's benchmark rate, the lawmaker leading the initiative said on Monday.
Businesses often complain that high commercial lending rates, often around 18 per cent or more, stifle corporate investment. Individuals say high rates put borrowing for home loans, for example, out of reach of many.
1. Lawmakers says move would boost business, employment
2. Banks say cap would decrease lending to riskier projects
3. Lawmakers say has broad support in parliament
The CBK whose benchmark rate is now 11.50 per cent, has urged banks to lower rates but has not set a cap.
Bankers say a fixed cap will push them to cut some lending to businesses deemed riskier, hurting economic activity. Parliament's previous attempts to set a cap have failed.
"Just the way the government put a cap on fuel prices, after the fuel prices ran amok, we should also put a cap on interest rates if we want to create employment, if we want to create new businesses," Kiambu Town MP Jude Njomo told Reuters.
Njomo, who was citing the 2010 government move to cap national fuel prices, sponsored the lending rate motion being prepared for a second and final reading. If passed, it will then go to the President, who can still refuse to sign it into law.
Banks cite a range of reasons for charging rates, such as the difficulty of obtaining a detailed history of new clients. They also say big customers, who they know well, can secure much lower rates than those commonly cited.
The
Kenya
Bankers' Association chairman, Joshua Oigara, who is also chief executive of
Kenya
Commercial Bank, said the proposed legislation would have "a huge impact on the entire financial sector".
Njomo, from the ruling Jubilee coalition, dismissed criticism of the move, which would also set the minimum rate for bank deposits at 70 per cent of the Central Bank's benchmark rate.
"We had the same response from the fuel dealers when the government said it was going to put a cap on fuel prices. The banks have been milking the people dry and they would like the same situation to continue forever," he said.
The government projects the economy will expand by about 6 per cent this year.
Parliament first attempted to control commercial lending rates two decades ago but past attempts have failed.
Njomo said his motion enjoyed broad support in Parliament.
If President Uhuru
Kenyatta refuses to sign, lawmakers could seek a two-thirds majority, which lawmakers said would force him to ink the legislation.