A compromise is being sought in Parliament to help shield old loans from new bank rates if MPs remove caps on interest rates.
This follows President Uhuru Kenyatta's decision to send the Finance Bill back to Parliament, asking MPs to amend Clause 45 that will pave the way for the caps on interest rates to go.
The compromise being fronted by the National Assembly Finance Committee seeks to appease MPs hostile to the President’s position to remove the interest controls.
The proposal is contained in a report of the House team on the President’s memorandum. The document was tabled yesterday.
While rejecting the Finance Bill, the President argued that the provision, which amends Section 33b of the Banking Act, had chocked credit to micro, small and medium-sized enterprises.
- READ MORE
- New taxes to watch
- Consumers to pay more for goods as taxes take effect
- President Uhuru signs into law 2020 Finance Bill
- Why are tolls coming back on major roads?
He also cited a decline in economic growth, mushrooming of shylocks, and a reduction of loans and advances by banks.
Votes from two-thirds of the entire House, or 233 MPs, are required to overturn the President's memorandum.
MPs are expected to vote on the committee's report this week.
The changes suggested by the committee mean that agreements entered between individuals and banks will remain in force should MPs agree to remove the rate cap.
“The committee, having considered the President’s reservations on the Finance Bill 2019, recommends that the House adopts the proposals by the committee to adopt the President’s reservations with amendments," the committee said in its report.
“Notwithstanding the repeal of Section 33b, any agreement or arrangement to borrow or lend, which was entered into, pursuant to the provisions of section 33b, shall continue to be in force on such terms, including interest rates, and for the duration specified in the agreement or arrangement.”
The House team, chaired by Kipkelion East MP Joseph Limo, had reasoned that rather than having banks gain entirely with the repeal of the law, it would be easier to get a compromise that will protect old borrowers.
The committee also reasoned that banks, hungry for profits, would quickly apply new interest rates the moment the President assents to the Bill, throwing borrowers off balance and affecting their investments.
“If the Bill is amended as proposed, it would have an effect on interest rates and the market for loanable funds.
"Caps on interest rates would be repealed and this therefore means that banks would be at liberty to vary the terms on loans taken during the time interest rates caps were in force," the committee said.