MP seeks to regulate lending interest rates

A Bill to regulate lending rates has formally been introduced in Parliament, nearly a decade after the Executive sided with banks to block similar attempts.

Rangwe MP Martin Ogindo has sponsored the Private Member’s Bill that seeks to amend the Banking Act (Cap 488) to put a cap on interest rates. The draft law seeks to prevent banks from charging borrowers more than 400 points or four percentage points above the benchmark Central Bank Rate (CBR).

The CBR currently stands at 16.5 per cent and should Parliament pass the Bill, banks would be allowed to charge a maximum interest of 20.5 per cent on loans. Reacting to adjustments by Central Bank of Kenya (CBK) in a move to tame inflation and stabilise the shilling, banks have also reviewed their interest rates upwards to as high as 25 per cent. If the Bill becomes law, they would be required to implement massive interest rate cuts.

The Bill also proposes to fix the minimum interest rate that a bank or a financial institution shall pay on deposits held in interest earning accounts to at least 70 per cent of CBK base rate.

The lenders are paying savers an average of 1.37 per cent on deposits, a figure that could rise to a minimum of 7.7 per cent if MPs pass the Bill. The proposed law has been referred to the Finance committee for scrutiny before referral to the House for debate.

The Bill proposes that the maximum interest rate that banks may charge for a loan or monetary advance shall not exceed by more than four per cent, the rate set and published by the Monetary Policy Committee established under the CBK Act.

It proposes an amendment that requires banks and financial institutions to pay interest on deposits at a rate of at least 70 per cent of the base rate set by the Monetary Policy Committee.