Kenya Rate-Cap Champion Unmoved as Banks Pledge to Boost Lending

NAIROBI (Capital Markets in Africa) – The Kenyan lawmaker who spearheaded legislation that placed a limit on the interest rates banks can charge is ready to block efforts from the regulator, Treasury and the industry to scrap the rules.

“We have not seen any change in the banks, in fact it’s more of grandstanding: ‘if you remove the caps, we give the loans,’” Jude Njomo said in an interview in the capital, Nairobi, on Monday. “Right now, trust has been completely lost, and when they ask us to remove the caps, it’s like we are exposing our people to oppression by the banks.”

Kenyan banks have blamed the rate caps for causing loan growth in East Africa’s biggest economy to stall as they cannot compensate for non-payment by charging riskier borrowers more. Treasury Secretary Henry Rotich and central bank Governor Patrick Njoroge are backing calls from lenders to repeal the law which the International Monetary Fund has said is damaging to the economy.

Parliamentarians aren’t buying it, said Njomo, adding that the law was introduced because banks were “misbehaving” with rates consumers couldn’t afford, while reporting consistently high profits, he said.

Economic Agenda
The measures were implemented in August 2016 — a year before disputed presidential polls and against the advice of the central bank — to fulfill a pre-election pledge by President Uhuru Kenyatta to improve lending terms for consumers. Kenyatta later acknowledged the caps have had the unintended consequence of slowing lending.

By repealing the section of the law covering the caps, the Treasury is hoping to reignite credit growth to boost manufacturing, agriculture, health-care and home building through partnerships with the private sector.

“The law we have is draconian,” Rotich said at a debate in Nairobi on Monday night. “For us to move forward, the economic agenda we have ahead of us requires a private sector that is active. It has to be able to lend.”

The government is pushing to scrap the caps by September to boost revenue and reduce its budget deficit to meet conditions of a standby facility from the IMF, said Renaldo D’Souza, head of research at Nairobi-based Sterling Capital. The administration, which has a majority in parliament, will probably lean on their members to support repealing that section of the Banks Act, he said. “It won’t be easy, but it will go through.”

Source: Bloomberg Business News