Keep interest rates cap firmly in place for ordinary citizens’ sake

Treasury officials were this week back at Parliament, again, to push for the scrapping of the law that caps lending rates.

Acting Cabinet Secretary Ukur Yattani backed by Treasury technocrats were appearing before the Parliamentary Committee on Finance and Planning to convince the MPs that the move to cap the rates at four percentage points above the Central Bank rate was hurting the economy, with small businesses hardest hit.

In what could be a strong push to win the heart of the finance committee, Mr Yattani warned that the credit to the private sector has dropped by more than a third since the introduction of the law, which was sponsored by Kiambu Central MP Jude Njomo, in 2016.

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But what the Treasury technocrats did not explain is that the loans to the private sector have been shrinking due to deteriorating economic conditions since 2014—way before the rate cap law was introduced.

Besides, Yattani is not telling Kenyans the real reasons behind the move by lenders to starve small business of crucial loans.

The rate caps, for the first time, offered predictability on lending rates from an era where commercial banks arbitrarily slapped borrowers with interest rates upwards of 30 per cent.

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This is purely a case of sabotage. Banks’ actions lately have appeared to frustrate the rate cap law for it to be seen to have failed to live up to expectations of easing access to funds for individuals and businesses.

Banks are still reporting healthy financials going by their first half profit numbers. In the six months to June 2019, commercial banks grew their pre-tax profit by 12.6 per cent to a record Sh85.8 billion.

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Apart from the banking industry and maybe Safaricom, there is no other sector that has reported double digit growth in profitability. This means the banking industry is still profitable under the current lending rates regime. That explains why investors are eager to pump in money into the industry.

We should allow consumers to continue enjoying the lower lending rates. Instead of repealing the law, the Government should find a way of getting the banks to lend to small businesses.

We should not allow the greed of some of the industry players to frustrate chances of Kenyans accessing affordable loans to do business, and in return grow the economy.

MPs must oppose proposals to repeal the interest rate capping law to the hilt for the sake of the ordinary Kenyans whom they represent.

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