President Uhuru Kenyatta has urged the Central Bank of Kenya (CBK) to wage total war on predatory lenders so that small businesses can access affordable credit.
The President said scrapping of the interest rate cap would boost circulation of money by ensuring availability of credit.
“I urge the Central Bank to use the full range of instruments of regulation and policy at its disposal to prevent predatory lending and ensure that banks can offer loans at affordable interest rates,” he said during a State address in Mombasa, yesterday.
“This sector is indeed the lifeblood of our economy.”
Uhuru outlined a raft of areas that his administration intended to focus on in the coming months, to boost the economy. He vowed to fight all constraints preventing the growth of micro, small and medium enterprises (MSMEs) that account for more than 80 per cent of all jobs in the country.
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He said the law that capped interest rates, which was removed last year, had an adverse effect on Kenya’s economy since its introduction in 2016.
Parliament passed the law that capped interest rates at four percentage points above the Central Bank Rate (CBR) in 2016, which was meant to end expensive loans - with banks previously appearing to set interest rates arbitrarily.
However, banks subsequently denied loans to individuals and MSMEs, arguing that the cap denied them ability to price their default risk.
“The law was introduced following a public outcry against the high cost of credit. The implementation of the law was expected to lower the cost of credit and also increase access to credit,” said Uhuru yesterday.
“Unfortunately, the law has had an adverse effect on the economy and reduced the amount of available credit.”
Banks have been cautious to be seen as offering expensive loans. One lender provoked Kenyans’ wrath barely 24 hours after the cap was scrapped after sending out a staff memo revising the rates upwards.