INTEREST RATE CAP REPEAL

Parliament to decide on rate cap today

Cap that allows banks to charge four percentage points above the central bank's benchmark rate at 9 per cent.

In Summary

•The legislature is expected to vote on whether or not to repeal the interest rate cap following President Uhuru' directive.

•As of May this year, the weighted average lending rate by commercial banks was 12.47 per cent, according to the Central Bank of Kenya data.

Members of the National assembly at Parliament./File
Members of the National assembly at Parliament./File

Commercial banks will today know their way forward in setting lending rates to borrowers after the Parliament vote.

The legislature is expected to vote on whether or not to repeal the interest rate cap following President Uhuru' directive.

Last month, President Uhuru declined to sign the Finance Bill 2019 giving a directive that the Parliament should scrap the which he said had singled out the reduction of credit to the private sector, led to a decline in economic growth and mushrooming of shylocks in the market.

He also pointed out that the rate cap had affected lenders in a way of increasing their average loan size, which disproportionately affected small firms and individuals.

The instructions put the lawmakers in tight fix as the repeal has some critics state that the banks will probably head back to days borrowing rate were as high as 30 per cent before the effect of the interest rate cap.

This is also as finance committee said in a report that Parliament should repeal the cap in line with the president’s demands.

In September 2016, the Parliament voted the interest rate cap that allowed banks to charge four percentage points above the central bank benchmark rate at 9 per cent.

As of May this year, the weighted average lending rate by commercial banks was 12.47 per cent, according to the Central Bank of Kenya data.

Institute of Economic Affairs chief executive Kwame Owino on his Twitter feed on Friday said the role of government regulation in the matter should be reviewed.

“Discussion about interest rates & retail lending doesn't end with 2019 repeal. The caps were ineffective and shouldn't have been implemented but the role of government regulation needs to be revisited,” Owino said.

“Commercial banks don't owe their borrowers low rates.”