Rates cap repeal mustn’t turn banks into capitalists
Kenyans are watching with apprehension to see if banks will jerk up interest rates after Parliament on Tuesday voted to remove the cap, imposed in 2016. Part of the reasons the law was changed is that banks insisted their ability to lend was curtailed by the cap as they could not lend to risky borrowers.
The youth, especially those running start-ups, have been the worst hit by banks’ decision to stop lending, especially without collateral. This is ironical, because credit reference bureaux assist banks to determine a borrower’s creditworthiness.
The Kenya Bankers Association has been lobbying the government to repeal the interest rates law. The lobby convinced Central Bank and Treasury mandarins—and even President Uhuru Kenyatta—that the cap was not good for the economy and urged Parliament to remove it.
MPs have now left Kenyans at the mercy of banks. The main concern is that we are likely to go back to exploitative interest rates, as high 30 per cent in some cases. Many Kenyans see bankers as heartless capitalists out to grab a pound of flesh. This is a debt especially a cruel or unreasonable one, an allusion to Shakespeare’s The Merchant of Venice, in which the Shylock demands he be paid the pound of flesh promised as collateral for a loan.
Between 1980 and 2002, many families were destroyed after banks auctioned their property lodged as collateral for loans. Tens of banks collapsed with customers savings.
Multinational banks, boasting back-up capital from head offices abroad, became arrogant. They hiked interest rates and threw majority of low-earning customersout of banking halls.
Frustrated, Kenyans trooped to saccos, micro-finance institutions and building societies. Will local banks now join multinationals in throwing Kenyans under the bus?
As President Kenyatta warned yesterday, wanton raising of interest rates will only destroy the economy. Unemployment will rise, fuelling insecurity. So, let the banks seek extra funding for lending from shareholders and partners.
Let the banks woo savings and deposits from the public. Banks must partner with the government and citizens to grow the economy. This is not the time for cold-blooded capitalism.