For signing the Banking (Amendment) Bill 2015, today, we applaud President Uhuru Kenyatta for standing with Kenyans. Our commendation goes just beyond the promise of cheaper loans, to the awareness by the President that there could be unintended consequences which he gave an undertaking to address.
The Bill that caps interest rates at 4 per cent above the indicative Central Bank Rate (CBR) currently at 10.5 per cent is a godsend to Kenyans weighed down by what most of them think is an exploitative banking sector. Banks will now have to cap their rates at no more than 14.5 per cent. The rates currently range between 18-24 per cent.
No doubt, a high interest regime makes investing and doing business prohibitive and costly. Expensive credit means entrepreneurs cannot easily fund their ideas to create jobs in an economy with about half of its youth unemployed.
Kenyan banks have been caricatured as predators never having enough of their prey. A judge of the Court of Appeal even described them as "robbers and vultures". Tales of a businesses sunk by the insensitive actions of some banks abound, the mental and psychological torture suffered by the owners and the subsequent job losses is mind boggling. That will change.
Kenya is not the first country to introduce caps on interest rates, relative to the base lending rate set by the Central Bank. Some of the world's biggest economies like United States, the UK, Japan, Germany and even South Africa have some form of capping.
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This newspaper expressed a genuine fear that a blanket capping of interest rates risked pushing high risk profile borrowers into the clutches of unregulated, black market lenders dominated by the much-dreaded Shylocks. Gladly, the President acknowledges that as well and promises action.
We advised that banks ought to take cognizant of the fact that Kenyans were wary of their exploitative ways and as a show of goodwill, they needed to rethink their interest rates pricing regime. That didn't happen.
We warned that Kenya's is a liberalised economy and therefore, market forces determine interest rates; that a blanket capping interest rates ran counter to the fundamentals of a free market economy. And feared that such a cap could imperil the economy by introducing ruinous currency controls last seen in the 1980s.
Yet to many Kenyans, setting a cap on interest rates is the best thing to happen, if only to tame the greedy banks which have altered lending terms, with little regard to the consequences of their actions. Often, it would seem as if they are competing to see who among them makes the most profits.
As Mr Kenyatta rightly put it, several attempts to regulate lending rates have been met by unfulfilled promises on the side of banks to conform and act in public interest. It is therefore not accurate and fair to condemn legislation of interest rates as the worst thing that could happen to the economy. Banks ought to appreciate that the benefits of cheap loans are broad and inevitably would extend to them, because when the private sector is flourishing, lenders will have more opportunities to do business and make money.
Hopefully in light of this, a lot more Kenyans will take up loans and benefit from the generous offerings.