On Thursday, 8 November 2019, President Uhuru Kenyatta signed into law the Finance Bill 2019 that, among other provisions, repeals the banking act that provides for the capping of bank interest rates.
Kenyatta’s memorandum recommending the scrapping on the interest cap law automatically sailed through on Tuesday, 5 November 2019, after the lawmakers failed to raise the quorum needed to oppose the memorandum.
In 2016, Kenyatta signed a bill into law that will cap high-interest rates offered by Kenyan banks at four percent above the Central Bank Benchmark Rate, which currently stands at 10.5 percent.
Before the capping of the interest rates, Kenyan banks were charging as high as 24 percent, with many Kenyans accusing the banks of being exploitative
Since then, Kenyan banks have shied away from lending to SMEs and individual borrowers and instead opted to lend to the government, which was borrowing heavily from the domestic market.
This led to the mushrooming of Shylocks and other unregulated lenders who took advantage of the effects of capping to lend to desperate citizens at exorbitant rates in a predatory manner, compounding the already existing problem.
The capping of the interest rates has also been blamed on the slow economic growth. However, Kenyatta decried the move to cap the interest rates, saying that it has not achieved the intended objective.
“The capping of interest rates has not addressed the intended objective, particularly in expanding credit access,” Kenyatta said in his note to Parliament.
“The repeal of section 33b of the Banking Act is expected to enhance access to credit by the private sector especially the Micro, Small and Medium Enterprises (MSME’s) as well as cut out exploitative shylocks and other unregulated lenders,” said Kenyatta in a statement issued in Nairobi on Friday, 8 November 2019.
The new law also introduces tax on income raised from the digital marketplace as a measure of ensuring equity in taxation.