Banks offered me millions to drop law capping interest rates, claims MP

Kiambu MP Jude Njomo explains a point during an interview with Weekend Business. [PHOTO: FELIX KAVII/STANDARD]

In what could throw the banking sector into a spin, Kiambu MP Jude Njomo has sensationally claimed that banks tried to bribe him to drop the new law capping interest rates.

Mr Njomo, who sponsored the Banking (Amendment) Bill (2016), that was signed into law by President Uhuru Kenyatta last month, in an interview with Weekend Business alleged that several banks used proxies to persuade him withdraw the Bill but he stood his ground.

The law capped the interest rate on loans at four per cent above the indicative Central Bank Rate (CBR) and increased interest on deposits to 70 per cent. Njomo claimed there was intense behind-the-scenes lobbying by lenders for him to withdraw the Bil, putting the integrity of lenders into question.

“I was under pressure to shelve the amendment. Through proxies, the commercial banks were offering millions of shillings. The lobbying was intense,” he said. The first-time legislator was speaking for the first time on the move that in effect saw interest rates on bank loans capped at 14.5 per cent based on the current CBR of 10.5 per cent after jetting back into the country on Thursday from Rome where he attended a two-week-long church event.

He says he was overwhelmed by the outpouring of support from Kenyans of all walks of life upon the announcement of President Kenyatta’s assent to the Bill. “I thank the President for listening to the cries of Kenyans,” said Njomo.

Keep an eye

He says it was through sheer determination that he pushed through with the new law in the face of mounting pressure from banks as it became clear that the entire nation was behind him after previous attempts by Parliament to cap interest rates flopped.

Njomo says he is not about to rest on his laurels after his rare fete, but will remain vigilant to make sure that the new law is implemented to the letter. “We need to keep an eye on the banks lest they try anything mischievous,” he says.

Lenders through the Kenya Bankers Association (KBA) have, however, begrudgingly welcomed the new law with some even cutting rates on existing loans. “We, however, do not feel that an arbitrary rate cap is in the best interests of the majority of people and businesses that this law seeks to support,” said KBA in a statement after announcement of the signing of the Bill into law.

So far tens of banks including, Coop Bank, CFC Stanbic Bank, KCB, Barclays, StanChart, Chase and Diamond Trust Bank (DTB) have adopted the new interest rates on both new and existing loans. Others say they are awaiting regulations from the Central Bank of Kenya.

Critics of the new law say that borrowers who have a higher risk profile could be pushed out from banks to unregulated lenders such as shylocks. The law imposes a fine of up to Sh1 million on errant banks.

At the height of debate on the Banking (Amendment) Bill (2016), MPs across the political divide joined forces in endorsing the new law.

Majority Leader Aden Duale and Minority Deputy Leader Jakoyo Midiwo led the House in endorsing the Bill. Mr Njomo wondered why Saccos have been lending at interest rates of 12 per cent yet banks have been increasing the rates every year, hindering investment.

“We are still unable to position ourselves 20 years as a business destination of choice 20 years on because of prohibitive interest rates,” said Njomo.

Away from politics, Njomo is an enterprenuer and educationist, who believes that knowledge is key to unlocking opportunities and fighting poverty.