Coast MPs oppose scrapping of bank interest rate caps

Several Coast MPs are against the removal of the interest rates capping as proposed by banks.

The MPs, including Ali Mbogo (Kisauni), Paul Katana (Kaloleni), and Benjamin Tayari (Kinango), are among those who staged a walk-out during last Friday’s Speaker’s Roundtable Meeting with the Kenya Private Sector Alliance.

On Monday, Mbogo told the Star Kenyans are going through hard economic times and allowing banks to impose their own interest rates on loans without limitation will make it burdensome for small scale businessmen to borrow loans.

“We know what we are doing when we insist on the interest cap. Otherwise, the banks will kill our small scale traders who require financial boosts for their businesses,” Mbogo told the Star on phone.

“We have to protect our traders from these people, who sometimes may be ruthless just to make a huge profit,” said Mbogo.

Katana said they will fight to the end to ensure the interest rate caps remain.

“We are talking to like-minded colleagues who want the best for their people just like we want the best for our people and Kenyans at large,” the Kalolen MP said on phone Monday.

On Friday, Funyula MP Wilberforce Oundo, the mastermind of the walk-out, said debate on the interest caps was not on the day’s agenda because the matter is still active in Parliament and should not have been sneaked into the Friday meeting.

“It was out of order for anybody to attempt to bring it in this session, yet the matter is lying before a particular committee that will hold public participation as expected by the Constitution of Kenya, the standing orders and all applicable laws,” said Oundo.

Last Thursday, President Uhuru declined to sign the Finance Bill, 2019 after MPs retained the interest caps.

In a memorandum to MPs, Uhuru sided with banks saying interest rate caps, which was first introduced in September 2016, have caused unintended effects that are significant and damaging to our economy.

“Most commercial banks adjusted their lending business models towards large corporates and the public sector and away from small-scale borrowers and individuals. As a result, credit to segments such as MSMEs, which are perceived as risky, declined after imposition of the controls,” Uhuru said in the memo.

Should banks have their way, borrowers will be left at their mercy.

They will have the freedom to price their loans depending on their risk assessment.

Banks have been lobbying for the scrapping of the 2016 law that capped lending at four per cent above the Central Bank Rate (CBR).

The Monetary Policy Committee (MPC) retained the minimum rate at nine per cent during its September meeting, limiting commercial bank rates at a high of 13 per cent.

But the MPs, led by Oundo, vowed to push on with the interest rate capping.

Oundo said they will fight to protect Kenyans from the fangs of the banking sector, which he said wants a return of their draconian lending rates that usually hurt borrowers.

The Funyula MP said any resolution from the Speakers’ Roundtable meeting with the private sector that would make any reference to the interest rate capping will be objected to.