MPs vow to retain interest rates cap

National Assembly Finance Committee Chairman Joseph Limo(R) and Waihenya Ndirangu when they met National Treasury CS. Henry Rotich at Parliament on Wednesday 19/09/18 on taxation. [Boniface Okendo,Standard]

Members of Parliament have said they will shoot down new attempts by the National Treasury to remove caps on loan interest rates.

Treasury said Tuesday it would make fresh attempts to remove the rate caps after debate on new taxes is concluded in Parliament and the law assented to.

The chairman of the Parliamentary Committee on Finance and Planning, Joseph Limo, however said MPs would reject attempts to revise the law that dictates the maximum rates that banks can charge on loans.

He said if banks were given a free hand to determine what to charge, they would restore interest to the highs they had hit before the caps came into place in October 2016.

Currently, the Central Bank Rate, which is the benchmark used to price loans, is at nine per cent. Lenders are restricted to adding four percentage points, bringing the maximum interest to 13 per cent.

Treasury had in the Finance Bill proposed scrapping of the interest rates cap and has often blamed it for the decline in credit to small businesses.

Mr Limo added that banks appeared to be relying on the Government to fight their battles while blatantly refusing to lend to SMEs.

“Now that it has not been reviewed to the extent that they wanted, it is a message to them (banks) from the lawmakers and mwananchi,” he said.

Limo spoke when the committee met with officials from Treasury, including Cabinet Secretary Henry Rotich, who broke down the recommendations by President Uhuru Kenyatta in a memorandum to Parliament after he declined to sign the Finance Bill.

Come down

While Treasury proposed scrapping the rate caps, the committee wanted the rates to come down further.

The MPs were of the opinion that lending rates should be calculated using the Kenya Banks Reference Rate of 7.6 per cent, hence interest charged by lenders can only go as high as 11.6 per cent.

“What happened is that the banks went and slept. They have not shown any effort to build capacity for SMEs so that they can be less risky and they can then lend to them without losing,” said the MP.