Bankers lobby backs President’s call for repeal of interest rate caps

Sunday, October 20th, 2019 02:21 |
KCB Group Chief Executive Officer Joshua Oigara.

Kenya Bankers Association (KBA) has lauded President Uhuru Kenyatta for referring back the Finance Bill 2019 to the National Assembly for reconsideration in accordance with the provisions of the Constitution.

KBA chairman Joshua Oigara said the President raised key challenges facing the private sector as a result of the interest rate controls contained in the Finance Bill, 2019.

According to Oigara, Uhuru asked Parliament to repeal the interest rate cap to provide an opportunity for commercial banks to make credit more accessible to borrowers, especially micro, small and medium-sized enterprises (MSMEs) which have been adversely affected by the legislation.

According to Oigara, the cap has resulted in reallocation of capital from where it is needed most. Since loan caps came it place in 2016, he said, lending has reduced by more than 1.2 million accounts. 

Size of loans

“Additionally, the size of loans has increased by 47 per cent; therefore, those who had a loan are borrowing more while those whom the law was intended for are forced to seek expensive and informal lending channels or shylocks,” he said.

Oigara said the net effect of the capping has been a slowdown in lending which has impacted on businesses and households. 

Prior to the caps, the MSME loan portfolio grew at a rate of 15 per cent per annum.

This reduced to about six per cent by September 2016, when the caps were introduced. 

World Bank statistics say credit to households has slowed to eight per cent from an average growth rate of 30 per cent.     

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