• CS says many banks shy away from giving loans to SMEs and the private sector because of the huge risks occasioned by capped interests.
• MPs say government overborrows, hence pushing the private sector out of chances to borrow.
Image: EZEKIEL AMING'A
Members of the National Assembly on Monday stood firm against Treasury’s renewed push to repeal capping of interest rates.
Appearing before the National Assembly’s Finance and National Planning committee, acting Treasury CS Ukur Yatani argued that the move is an impediment to the country’s economic growth.
He said the ceiling has hurt credit growth and access to borrowing and should be reviewed as it has curtailed borrowing by the private sector.
“The noble intention of capping interest rates has not worked. When SMEs are not growing, it explains the challenges we are seeing in the market. It is high time we were bold enough to review this,” Yatani said.
“It is going to be extremely difficult to be competitive in the region. We must be alive to our neighbourhood. Are they capping their interests? No.”
The CS said the caps, which came into effect in September 2016 through the Banking (Amendment) Act, 2016, have not served their purpose and instead have hurt borrowing by the private sector especially to the small and medium enterprises.
He said many banks shy away from giving loans to SMEs and the private sector because of the huge risks occasioned by the capped interests.
Treasury opposed the interest cap that puts the ceiling at 13 per cent and instead lobbied for the introduction of risk-based lending.
The capping was meant to reduce costs of borrowing, expand access to financial services and increase the return on savings. All these have not been realised, Yatani said.
But the committee dismissed the push accusing the CS of bidding on behalf of the bankers. It consists of chairman Joseph Limo (Kipkelion East), Sam Atandi (Alego Usonga), Joseph Oyula (Butula), Christopher Omulele (Luanda), Dawood Rahim (North Imenti) and Joshua Kandie (Baringo Central).
The lawmakers instead blamed the government for over-borrowing from banks thereby elbowing private sector and SMEs from accessing credit from banks.
“We have no problem with the interest rates but the government. If Treasury stops borrowing the banks will have no other option but to give loans to the private sector,” Dahood said.
Atandi said, “It is not factual to suggest that if we remove interest rates then banks will start issuing loans to SMEs. The push to repeal the caps will only serve to benefit a few individuals in the banking sector.”
The legislator is a professional banker.
Limo told the CS to reduce their appetite for bank loans and the "banks will all be on the streets hawking loans to the private sector and SMEs".
Edited by R.Wamochie