Interest rates debate as caps repeal is proposed

Kenya’s Treasury Cabinet Secretary Henry Rotich has signaled an end to interest rates capping, saying the interest rate controls have contributed to a slowdown in credit growth to the private sector and denied small businesses’ access to credit.

In his FY 2018/2019 $30.4 billion budget speech to the National Assembly on June 14, Rotich said the interest capping law had not had the intended effect but instead resulted in banks shying away from lending to riskier borrowers such as ordinary businesses and individuals who used to borrow at rates above the 14% that was set through an amendment of the banking law that was passed a year and a half ago.

Rotich observed that he would ask parliament to repeal section 33 (b) of the Act to enable banks to provide more credit to riskier borrowers. He added that the government was also proposing a credit guarantee scheme for micro, small, and medium enterprises, and new credit institutions through the creation of the Kenya Development Bank and Biashara Kenya Fund and other new laws to help protect consumers of financial products.

The interest rates debate continues next week with a session on Monday, June 18 at the Strathmore Business School that will facilitate debate on the impact of the interest rates ceiling and floor.

Organized by the Kenya Bankers Association (KBA), the Institute of Economic Affairs (IEA) and Fanaka Digital, among other partners, the televised session will feature perspectives from the Treasury Cabinet Secretary, MP’s Jude Njomo – who sponsored the 2016 banking amendment┬áthat capped interest rates, and Moses Kuria, who is a member of the Budget and Appropriations Committee.

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