Why Kenyan bankers oppose bill to cap lending rates


The Kenya Bankers Association (KBA) has protested against the proposed banking amendment bill 2015 that seeks to cap lending rates at a maximum of 4 per cent over the Central Bank Rate (CBR) that was passed by the Kenyan Parliament on Wednesday. KBA has asked for a review of the bill which the association says will go against promoting financial inclusion in the country, locking out those that struggle to access capital.

Read: Kenyan banks have ample liquidity says Central Bank of Kenya

Speaking to CNBC Africa, the incoming KBA Vice Chairman, John Gachora reckons the bill will be bad for the economy “Kenya has made steps in financial inclusion, we should not take those gains for granted. Free markets have allowed banks to be innovative, they have allowed us to get more people financially included, the moment we control and take away this aspect, we are saying that financial inclusion is not something that matters to us but we care about those already financially included.”


The bill currently awaiting assent from the president to become law will drop lending rates to 15 per cent in reference to the 10.5 per cent key lending rate. Current commercial bank lending rates average 20 per cent with highs of up to 24 per cent depending on the risks involved.

Attempts to put a cap on lending rates chargeable by commercial banks have been mooted since 2000. Only last year, the bill was rejected as contradictory to article 114 of Kenya’s constitution, which requires all finance bills to be passed in accordance with the relevant committee of assembly, taking into account the views of the Cabinet Secretary responsible for finance.

The Kenyan Treasury had earlier opposed the bill, with Henry Rotich the National Treasury Cabinet Secretary saying “The solution is dealing with underlying factors that cause the interest rates to go up”.

In comparison, the capping of lending rates has proved faulty to countries around the world. According to the incoming Kenya Bankers Association Chair and Group MD at NIC Bank Gachora, there is need to provide solutions to underlying issues that push up lending rates “Let us look for ways to get down those rates, ways that are sustainable, ways that are market friendly and ways that foster financial access like making sure that there is food transparency… focusing on those things that make credit expensive, the cost of charging property is too high in this country, the cost of money is high. Accessing credit risk of individuals is very difficult and that is why we suggested that the credit reference bill be formed.”

The Banking Amendment Bill 2015, sponsored by lawmaker Jude Njomo, also seeks to set the minimum rate for bank deposits at 70 per cent of the Central Bank’s benchmark rate.

The lenders’ umbrella body feels, the bill will cripple small and medium enterprises (SMEs) which depend on financial support from banks resulting in interrupted enterprise development, poor performance and unemployment.

Speaking for the industry, Gachora says the banking sector has fully committed to supporting emerging businesses: “We have suggested to parliamentarians to put money on the side to educate and help those SMEs and individuals who have suffered from this high rates and we feel need access at affordable rates, we are willing to set aside Ksh30 billion as an industry for funding SMEs at concessionary rates.”

The proposed law comes on the back of the Monetary Policy Committee’s decision to maintain the key lending rate at 10.5 per cent on Monday, while reducing the Kenya Banks’ Reference Rate (KBRR) by almost 1 per cent to 8.90 per cent from 9.87 per cent. Though largely unsuccessful, the KBRR was introduced to enable transparency in the pricing of loan products.