A portal helping borrowers compare total cost of loans will help enhance competition in the industry where interest rates are controlled, the regulator and industry lobby have said.
The Central Bank of Kenya and the Kenya Bankers Association yesterday officially launched Cost of Credit website – more than a year since the plan was mooted – in a bid to enhance transparency in pricing of loans.
“As a start, three types of loans are featured on the website: personal secured loans, personal unsecured loans and mortgage loans. Additional loan facilities will be added gradually in phases,” CBK and KBA said in a joint statement. “The website provides consumers with a simplified as well as an advanced total cost of credit calculator to inform their decision-making prior to taking up a loan product.”
Whereas the interest charged on loan is, under the Banking (Amendment) Act 2016, capped at four percentage points above the Central Bank Rate – presently at 10 per cent – fees, commissions and other transaction costs are not controlled. Any increment in the fees by banks must, however, be approved by the CBK before being implemented.
The Banking (Amendment) Bill, 2017 – sponsored by legislator Kimani Ichung’wa (Kikuyu) in February– is, nonetheless, seeking to have the cap applied on the total cost of credit which is reflected as a percentage under the Annual Percentage Rate. The APR, adopted by KBA in July 2014 to help borrowers compare interest rates in different banks, also captures non-interest charges on loans largely legal, insurance and consultation fees. Banks have protested the plan to legislate loan fees and commissions through further amendments to the Banking (Amendment) Act.
“It is already a challenge to the banks to configure their business models in the new reality of the interest rate cap. If you want to have a free market then the best thing is not to legislate everything,” Family Bank chief executive David Thuku said on June 8. “Self regulation and market supply and demand (forces), in my opinion, is the way to make the market efficient as opposed to legislation which would be retrogressive on the gains the market has made.”
CBK and KBA reiterated yesterday transparency, through full disclosure of credit information, is a key element of an effective, safe and sound banking system. The two entities said information provided on the website, www.costofcredit.co.ke, complements what is given by the banks and 12 regulated micro-financiers.
“Consumers are, therefore, expected to perform their own due diligence and should contact their respective banks for details prior to entering into any loan agreement,” they said.