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    Kenya:Rotich Calls for Sobriety in Dealing With Loan Interest Caps


    Treasury Cabinet secretary Henry Rotich has called for sobriety in the interest rate debate, which he says is denying small businesses access to credit.

    Speaking at a forum on interest rate held at Strathmore Business School in Nairobi, Mr Rotich emphasised the need to have fact-based solutions to the cost of loans.

    "In the meantime, let us get the interest cap out as we provide solutions through other mechanisms such as the Kenya Development Bank and the Biashara Bank. With the structured reforms that we continue to put in place in collaboration with banks, the cost of loans will come down," said Mr Rotich.

    Last week Thursday, while presenting the 2018/19 financial year budget in Parliament, the CS said the State would put in place a package of reforms aimed at optimising lending to the private sector.

    In place of the interest rate caps, Mr Rotich suggested several measures including the establishment of a National Credit Guarantee Scheme for micro, small and medium enterprises (MSMEs), and the introduction of a Financial Markets Conduct Bill, 2018, that comprehensively addresses consumer protection and unregulated lending in the financial sector.

    During the forum, the architect of the law (Banking Amendment Act, 2016) Kiambu MP Jude Njomo said it was meant to breed a banking industry that is disciplined and benefits the low-income earners.

    Mr Njomo said the law came into force because banks were misbehaving and colluding to increase interest rates.

    He said a repeal of the interest rate cap should be preceded by reforms in the banking industry.

    "We are not convinced that the time has come to remove the caps... .we need measures in place before we remove the caps," said Mr Njomo.

    According to the Central Bank of Kenya (CBK), lending to SMEs has dropped by more than Sh13 billion due to banks' heightened risk sensitivity following the enactment of the interest rate cap in September 2016.

    The provisioning requirements occasioned by the new International Financial Reporting Standards (IFRS) 9 on financial instruments which came into effect on January 1, 2018, is also a contributing factor.

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