Treasury secretary Henry Rotich. file photo | nmg
The Treasury faces a daunting task in its plans to repeal the
popular law capping interest rate with Members of Parliament (MPs)
vowing yet again to reject any amendments to the Act, which they claim
may return the country back to the era of expensive loans.
Treasury
Cabinet Secretary Henry Rotich last month confirmed the State will
introduce legal amendments to the law setting interest rate despite
recent opposition by MPs and mounting concern from borrowers, saying the
review will provide consumer safeguards.
Mr Rotich said the State is developing a legal framework that will address the whole management of credit in the economy.
“It
is not only the issue of cost of credit but issues of consumer
protection. We are going to put forward a package of reforms, which
should address the real cause of high credit cost in Kenya and lead to
the elimination of law capping interest rates,” said Mr Rotich during
the launch of 2018 Economic Survey Report in Nairobi.
But
now MPs have vowed to strongly reject any amendments to the law
maintaining that they might expose consumers to high rates of credit
setting the stage for a major clash between Parliament and the Executive
on consumer protection policy.
Kiambu Town legislator
Jude Njomo and the architect of the rate capping law told Smart Company
that Members of Parliament have taken a common position in their
opposition to removal or overhauling of the law motivated by need to
protect consumers from profiteering by commercial banks.
“They (MPs) don’t need to be marshalled or whipped,” said Mr Njomo in the interview.
“They have refused and they do not want to subject their employers (wananchi) to the bank cartels,” said Mr Njomo.
Mr Njomo has in the past accused lenders of engaging in “blackmail and economic sabotage to force amendments to the law.”
“There
is a concerted effort by banks, which have formed cartels to keep off
credit from the public thus blackmailing parliament or the government
into changing a law that protects Wanjiku,” claimed the MP earlier.
The
Consumer Federation of Kenya (Cofek) and the Institute of Certified
Public Accountants of Kenya (ICPAK) have also warned that the removal of
legal limits on borrowing will hurt consumers.
The
accountants’ body has noted that while it appreciates the concerns from
stakeholders, it is “too early” to accurately determine the impact of
capping of interest rates to any sector of the Kenyan economy.
“As
an institute, we continue to support interest rate capping as the
benefits outweigh the hiccups faced so far,” ICPAK chairman Julius Mwatu
said last month.
“We believe that the challenges
experienced with lending in the recent past are not directly
attributable to the interest rate caps. Therefore, any discussions to
consider scrapping of the interest rates caps should ensure that the
initial objectives of the capping are maintained,” Mr Mwatu added.
Consumer
lobbies have similarly warned that while the subsequent credit crunch
after the law was effected in September 2016 bear serious implications
to the private sector, scrapping the controls altogether may not be the
panacea, and would in fact lead the country back to the era of high
rates whose consumer outcry prompted the controls in the first place.
“The
reasons, which necessitated the capping regime have not been mitigated
upon. CBK must balance market and consumer interests going forward,”
said Cofek secretary-general Stephen Mutoro earlier.
Mr
Rotich’s comment came nearly two weeks after President Uhuru Kenyatta
backed plans to review the interest rates cap law, saying the policy has
failed to increase credit access to traders.
Speaking
at the Chatham House in London last month, President Kenyatta said the
government could scrap or modify the laws limiting the rates so that the
provisions do not stifle economic growth and the availability of
capital for investment.
“It is clear to all that this
was going to be the way to make capital available to SMEs (small and
medium enterprises) …at a much more affordable rates. It is now obvious
that actually that has not transpired and that is why we need to re-look
that law,” said President Kenyatta.
The assertion by
the Head of State came against the backdrop of a study by CBK on the
impact of the rates cap law on the Kenyan economy which said the policy
failed to achieve its objective of increasing credit access to SMEs by
limiting the cost of borrowing for businesses and individuals.
Further,
the study showed a significant decline in loans uptake since the
Banking Amendment Act came into effect in September 2016, setting a
maximum lending rate at no more than four per cent above the CBK’s base
rate, which stands at 9.5 per cent.
Banks have,
however, made it clear that they want nothing short of total repeal of
the law, arguing that they have put in place measures to prevent a
return to the days of usury.
“We will be looking for a
total removal of the cap. We now have in place a number of measures,
some ongoing, addressing concerns around opacity in pricing of loans
through the cost of credit website that allows borrowers to compare loan
charges comprehensively across different banks,” Kenya Bankers
Association (KBA) chief executive Habil Olaka said in an earlier
interview.
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