New pricing tool to enable borrowers shop for cheap loans

Commercial banks have started piloting the Annual Percentage Rate (APR) pricing mechanism, which will enable comparison of loan costs based on standardised parameters and a common computation model. Use of the tool will become effective from next month.

In addition to conducting training for bank employees, including loan officers, banks are currently modifying their systems and loan application procedures in readiness for the adoption of the APR disclosure requirement. APR is one of the industry interventions spearheaded by Kenya Bankers Association (KBA) in collaboration with Central Bank.

“As an industry, we are enhancing pricing disclosures in order to enable bank customers to make more informed choices,” said KBA Chief Executive Officer Habil Olaka.

He said this is one of the mechanisms embraced by banks to address issues relating to easing access to credit. Treasury plans to submit to Parliament a new Central Bank of Kenya Bill, the Financial Services Authority Bill and subsequently, all the financial sector regulatory Bills.

Thereafter, it will seek to establish a broader framework for the National Treasury, Financial Services Authority and Central Bank of Kenya to co-ordinate overall financial stability in the economy.

“These measures, together with other systems already proposed by the Committee on Interest Rates are expected to drive average  interest rates downwards, thus making credit affordable and accessible to as  many Kenyans as soon as possible,” according to the National Treasury Cabinet Secretary Henry Rotich.

Some of the measures announced recently include introduction of Kenya Bank Reference Rate (KBRR) and the transparent disclosure of bank charges through the Annual Percentage Rate.

 The APR mechanism promotes pricing transparency and therefore would not only stimulate competitive loan interest rates but would also promote consumer protection by standardising disclosures during the loan application process.