Through a percentage known as the Annual Percentage Rate (APR) adopted by the Kenya Banker’s Association (KBA), APR will empower borrowers to comprehensively compare different loan products so that they can make informed credit decisions.
According to Joshua Oigara, Chairman at KBA, APR will enhance credit access to loan borrowers as well as ignite competition in the banking industry.
“Promoting transparency in lending remains a priority for the financial services sector and for banks in particular, we therefore are thankful to our stakeholders, including the Central Bank of Kenya and the National Treasury, for their partnership in this quest to enhance access to credit through progressive and enabling policies” said Oigara.
KBA also launched a website ‘Credit Calculator Online’ and mobile application in conjunction with the industry’s implementation of the Kenya Banks’ Reference Rate (KBRR) and the APR pricing mechanism.
The website, has information on the APR which has a simple APR calculator that loan applicants can use to estimate the total cost of a bank loan by accessing the total cost of the credit template.
Bank loans in Kenya are usually based on standardized parameters and a common computation model.
Previously, banks used to price their loans using a Base Rate provided by the Central Bank of Kenya which is at 8.5 per cent and the formula for calculating the Base Rate varied from bank to bank hence the introduction of a new base rate, Kenya Banks Reference Rate (KBRR) at 9.13 per cent for all commercial banks’ lending rates. The KBRR is expected to lower high interest rates. The central bank is expected to issue this rate after every six months.
However, so far only one bank, Standard Chartered, has complied issuing loans at 10.9 per cent from 12.9 per cent which is 1.77 per cent above the new set KBRR. Nonetheless, this rate which started on July 15th runs for a limited period of 45 days.
Bank loans in Kenya are usually based on standardised parameters and a common computation model.
“With these and other initiatives that will be overseen by the Cost of Credit Committee, I fully believe that as a country we will ultimately have a more efficient credit system and, enhanced access to credit,” said Oigara.