President must protect consumers and sign Banking Bill into law

The President should sign the Banking (Amendment) Bill 2015 that seeks to cap commercial interest rates in the country. He should not think twice on this matter, and must not waver.

He must be guided by the constitutional obligation to protect ordinary Kenyans from all forms of exploitation. It is a duty and a calling. He must not be dissuaded by the banking sector moguls from standing up to be counted when the nation’s economic interests are threatened.

It will not be the only sector to suffer government control on pricing. The energy and utilities sector are price regulated by the government, and it has helped stabilise price volatility and exploitation of the public.

The proposed funding to SMEs at concessionary rates and a commitment to an MoU in this regard by the banks should be treated with the contempt it deserves. It is diversionary, intended to deflect the focus on the Bill and stop the President from signing it.

For many years, our banks have defied all efforts to lower the prohibitive interest rates and destroyed many businesses while they earned staggering profits, even in the worst of our economic times.

The seven largest banks earned $1 billion in profits last year, representing 70 per cent of the total sector’s profits. They lobbied hard to ensure the ‘Donde’ Bill was not fully implemented even after it was assented to.

Even provisions in law to cap bank charges were routinely flouted while the treasury and Central Bank looked the other way. The two have always provided protection to the banks even as the latter trashed their self-serving proposals such as the KBRR introduced to deflate a similar move to regulate the sector.

Kenya will not be the first country to cap interest rate. A World Bank study carried out in 2014 reveals that 76 countries in Europe, Asia, Africa and the Americas cap interest rates in one way or another in order to protect consumers from excessive interest rates, to increase access to finance and to make loans affordable.

After the 2008 global financial crises, many countries moved to limit the self-regulation and market liberalisation of the financial sector to protect consumers. The move will not negate financial liberalisation but complement the sector’s role in enhancing affordable credit access and in serving public interest.

The interest rate capping in the Bill is not absolute, but relative, based on the CBK’s benchmark rate. It will also reduce the untenably high spread between the lending and deposit rate usually seen in the larger banks.

This spread is largely influenced by monopoly enjoyed by these banks, and has discouraged Kenyans from enhancing their savings. In fact, the this capping will increase national savings because the deposit rates will improve significantly, drawing deposits for the banks and providing more funds for investments.

It is also important to note that the government’s failure to reduce its public sector expenditure leads to budget deficits, which pushes the government to borrow domestically, impacting adversely on the interest rates. Similarly, other factors such as inflation, money supply, reserve ratio and interbank rates, all of which are controlled by the government, influence interest rates.

Our banks also live large, with huge administrative overlays and other bank specific expenses that price them out of our reach. All manner of charges and fees are charged by our banks, which are now the subject of a court case by Florence Wanjiru.

It is time the government reined in banks that have stagnated the growth of our SMEs in the past few decades because of lack of access to affordable finance. Banks are a business, and they must play by the rules of the State, not their own rules. After all, it’s money they trade in!