Sadly President Kenyatta has been pressurised into assenting to the Banking Amendment Act that caps interest rates at Central Bank Rate plus four per cent.
This populist move will be popular in the short term because Kenyans think they will pay less for their loans.
But in the long term, the interest rate cap will hurt ordinary Kenyans and damage the economy.
There is a high level of non-performing loans in Kenya. Now if a bank's portfolio has more than four percent of bad loans, which is quite possible, it will go into a loss.
Previously banks protected themselves by charging higher interest rates to risky borrowers. Now they cannot do that.
They will stop lending except to government, their biggest borrower, and to their blue chip clients who can provide adequate security in case they default.
Ordinary Kenyans and small businesses will find it much more difficult to borrow. Microfinance will become history.
The economy will slow down sharply because of reduced liquidity.
