INTEREST RATE CAP

Banks should lend at affordable rates

In Summary

• The interest rate cap has been in place since 2016 but lapsed on Tuesday when MPs were unable to oppose the President's memorandum.

• The rate of growth of commercial bank credit has fallen sharply since the cap was introduced in 2016.

KCB chief executive Joshua Oigara on March 2. Photo/Enos Teche.
KCB chief executive Joshua Oigara on March 2. Photo/Enos Teche.

Yesterday the KCB Group CEO Joshua Oigara and Majority leader Aden Duale both welcomed the lifting of the interest rate cap (see P14).

On Tuesday, the cap lapsed when MPs failed to raise a quorum that would have overridden President Uhuru Kenyatta's memorandum.

Many people have complained that this will bring back 'expensive' loans. But the individuals and small companies have not been getting loans because the banks have not been lending unless they can factor in the cost of risk. 

 

So people have resorted to digital borrowing with interest rates of up to 250 percent annually. Lifting the cap should actually lead to 'cheaper' loans if customers can now borrow at 18 or 20 percent.

Hopefully, there will now be a growth in credit, as opposed to the decline since 2016 when the cap was introduced, and the economy will speed up again.

Oigara yesterday promised that commercial banks would behave responsibly and would only raise rates for 'risky' customers by two or three percentage points.

Let the banks now put their money where their mouths are. Let them lend more and at reasonable rates.

Quote of the day: "You may not be interested in strategy, but strategy is interested in you."

Leon Trotsky
The Russian revolutionary was born on November 7, 1879