In 2009, an acquaintance borrowed 1.3M from a commercial bank and started repaying immediately. The arrangement was that he services this facility for six years in instalments of 40,000 a month. Two years down the line, he faced a personal challenge and could not service the facility for several months but later resumed the regular repayments. To cut the long story short, to date he has paid cumulatively approximately 3M and still owes the bank 1.4M.
This is a typical example of how rogue the banks have become. There are so many hidden costs and interest rates rated to borrowing including but not limited to charging interest on interest, penalty interest, account management interest and charges, annual interest on renewal among others. All in different versions to milk their customers dry. The saying that banks lend you umbrellas when it is dry and come for it when it is raining could not have been an exaggeration at all. The contrary can be said of cooperative societies. When you borrow from a Sacco, you can be sure that within 3 months of repayment, the principal amount begins reducing at an increasing rate. Yet Saccos also pay dividends to members and have operational costs. Therefore the commercial banks’ reasoning that they pay interest on deposits among others costs does not hold any water.
Days ago, commercial banks through their association presented a proposal to reduce their interest rates. Why now and not any other time before? CBK is in support of commercial banks with the argument that such controls shall lead to cautionary lending thus leading to shrinking in lending. This is a fallacy. The other day such protests were prevalent before energy regulation was put in place. Today, we have a regulator of energy prices and players in the sector are still operating profitably. While the free hand that determines demand and supply should be allowed to operate in ideal situations, the current one in banking has taken too long to reach the equilibrium because there could be more invisible hands that seek to take advantage of poor masses.
Parliament finally saw the light, sixteen years after the Donde Bill was mutilated by the invisible hands. The president hand should therefore seal this deal this time round without any hesitation. Anything short of this would be interpreted to mean he has turned his back to the Kenyan population and is dancing with the bankers.
Dr. Ongeti is a Strategy and Governance Scholar and Consultant
