Fresh bid to review rate cap law

Gatundu South MP Moses Kuria during a press conference on the advertising for the position of Chief Justice in Parlaiment yesterday.Photo/HEZRON NJOROGE
Gatundu South MP Moses Kuria during a press conference on the advertising for the position of Chief Justice in Parlaiment yesterday.Photo/HEZRON NJOROGE

Bankers have welcomed proposals by Gatundu South MP Moses Kuria to revise the 2016 Banking (Amendment) Act.

In a letter to the National Assembly Speaker Justin Muturi, Kuria wants the Act changed to enable SMEs and unsecured individual borrowers negotiate risk-based interest rates above the normal cap.

“Unsecured individual customers should negotiate pricing based on their risk profile and on a willing buyer, willing seller basis,” Kuria says in his letter.

The proposal further wants the risk negotiation window to be up to six per cent above the lending cap for SMEs.

Nonetheless, it prescribes that the act maintains the lending cap at four per cent above the CBR rates for low-risk clients.

“Proposed interventions that look at the SME sector are welcome but should be looked at in conjunction with the broader systemic issues that limit access to finance,” Kenya Bankers Association Director of Communications Nuru Mugambi said.

She said the proposed changes should also be looked at simultaneously with issues that increase the cost of credit for households and the private sector overall.

The Consumers Federation of Kenya (Cofek) has opposed Kuria’s proposal arguing that the timing and intention of the amendment is wrong.

“We urge the Speaker of the National Assembly Hon Justin Muturi should reject the proposed changes on the technicality of the 6 months requirement for such an amendment,” Cofek Programs Officer Onsesmus Mutungi said

A similar move to repeal or amend the act was rejected by the National Assembly in August last year during the heated debate on the Finance Act, 2018.

Kuria’s proposal comes about two years after Kiambu MP Jude Njomo introduced an amendment to the Act to inject put a ceiling to the interest banks can charge clients.

KBA agreed that as much as the introduction of the rate cap had good intentions, it has not helped drive enterprise development or promote savings.

“ The interest rate cap has resulted in unintended consequences in so far as driving much-needed credit away from the private sector and SMEs to government debt,” said Mugambi.

Since its introduction in 2016, the rate cap has seen bank lending reduce by over 1.2 million loan accounts and SME finance drop by more than Sh13 billion.

At the same time loan sizes have increased by 47 per cent.

“This means that those who had access to credit have even more access and those who were not able to borrow from banks are still not accessing bank finance,” Mugambi said

According to the Stanbic Bank Kenya 2019 economic outlook released yesterday, a repeal of the rate cap law should be a top priority for authorities in 2019.