Rate caps reversal puts Kenyans at banks mercy

Thursday, October 31st, 2019 07:00 |
Loan. Photo/Courtesy

Members of Parliament’s bid to retain the interests rates cap law could be vanquished by a determined Executive to re-introduce it. The pressure to return the unfettered interest regime is massive. It is from lenders, economic policy mandarins and the International Monetary Fund(IMF).

Though alive to the political backlash, especially by ordinary borrowers who had pushed for the enactment of the law to tame greed by banks which operated with Shylock tendencies, the President has capitulated.

Those in favour of scrapping of the law argue that while it was politically expedient when it was introduced, it is now economically suicidal. This is because lenders— either by design or sheer blackmail— starved the small and micro-enterprises, which are the engine of economic growth, of the much-needed money for business. The consequence  is the collapse of many SMEs and start-ups.

The legislators on whom Kenyans banked their hope to cushion them from the lenders greed are now being arm-twisted to ensure the Finance Bill sent back to Parliament by President Uhuru Kenyatta sails through the House. Matters are not helped by a parliamentary leadership that is now singing the tune of the Executive. Once passed, the obituary of affordable credit could as well have been written.

At face value, banks have emerged winners in the struggle to kill regulation of interest rates, taking Kenya back to September 14, 2016 when the revolution started. However, it is the common man who has lost the most in desperate bid to cure Kenya’s credit problems.

Perhaps, it is not all gloom as MPs have cushioned current loans from any new changes.

The law to cap interest at four per cent above the Central Bank of Kenya (CBK) base rate was welcome by ordinary borrowers.  But from the onset, banks were determined not to allow market dynamics to dictate lending. Their intentions were clear: to fight the law and defeat it.

They opted to deny private sector money and instead do more business with national government, which they perceived as posing less risk compared to small borrowers in the private sector.

What legislators and regulators must now do is halt a total slide into the dark past. More importantly, government must keep off the market to free more money to growth sectors.  Unless this happens, removal of rates cap will not serve any purpose.

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